Retail Management (Imm)

RETAILING – IntroductionRETAILING – Introduction - Subir Guha- Subir Guha

What Is Retailing?What Is Retailing? Retailing is defined as a conclusive set of Retailing is defined as a conclusive set of

activities or steps used to sell products or activities or steps used to sell products or services to consumers.services to consumers.

Retailer is the one who links the Retailer is the one who links the producers and the ultimate consumers.producers and the ultimate consumers.

The word ‘retail’ is derived from the The word ‘retail’ is derived from the French word French word retallierretallier , meaning ‘ to cut a , meaning ‘ to cut a piece off’ or ‘ to break bulk’.piece off’ or ‘ to break bulk’.

Retailing is buying in large quantity from Retailing is buying in large quantity from a whole seller or directly from a a whole seller or directly from a manufacturer and selling the goods/ manufacturer and selling the goods/ services to consumer for personal services to consumer for personal consumption.consumption.

THE UNORGANISED RETAILING THE UNORGANISED RETAILING CHAINCHAIN

The Chain:The Chain:

Manufacturer

Intermediaries

Retailer

Consumer

Manufacturer

ORGANISED RETAILING CHAINORGANISED RETAILING CHAIN

Retailer

Consumer

EVOLUTION OF ORGANISED RETAILINGEVOLUTION OF ORGANISED RETAILING Bon MarcheBon Marche in Paris in 1852 is said to be the in Paris in 1852 is said to be the

first true departmental store. In the U.S., first true departmental store. In the U.S., chain stores began with the founding of chain stores began with the founding of The Great Atlantic & Pacific Tea Company (A&P) in (A&P) in 1859.1859.

Retailing in modern form started really in the Retailing in modern form started really in the 1920s. (A&P, Woolworth, United Cigar in US). 1920s. (A&P, Woolworth, United Cigar in US). Some food chains started selling meat, fruits, Some food chains started selling meat, fruits, vegetables and diary products under one roof.vegetables and diary products under one roof.

The self service supermarket concept became The self service supermarket concept became popular in the 1930s popular in the 1930s

Technological advancement in packaging Technological advancement in packaging resulted in prepackaging of meat, vegetables resulted in prepackaging of meat, vegetables and grocery items. This gave a boost to and grocery items. This gave a boost to retailing because of the convenience retailing because of the convenience provided.provided.

http://www.terragalleria.com/pictures-subjects/stores/picture.stores.usma45748.html

IMPORTANT CHARACTERISTICS OF IMPORTANT CHARACTERISTICS OF ORGANISED RETAIL BUSINESSORGANISED RETAIL BUSINESS

Positive characteristicsPositive characteristics 1. Choice of wide range from small (500 sq ft) 1. Choice of wide range from small (500 sq ft) to very big (hyper market >1,00,000 sq. ft)to very big (hyper market >1,00,000 sq. ft)

- Variety of business (products very large- Variety of business (products very large (food items- restaurants/textile garments)(food items- restaurants/textile garments) 2. Franchisee option / own retail store choice.2. Franchisee option / own retail store choice. 3. Easy mobility because the principle and 3. Easy mobility because the principle and concepts are the same everywhere.concepts are the same everywhere. 4. People oriented industry.4. People oriented industry. 5. Fairly stable and secure business – many 5. Fairly stable and secure business – many retail businesses are least affected byretail businesses are least affected by recession in the economy (like food).recession in the economy (like food).

IMPORTANT CHARACTERISTICS OF RETAIL IMPORTANT CHARACTERISTICS OF RETAIL BUSINESSBUSINESS

6. Not dependent on few vendors / customers.6. Not dependent on few vendors / customers. 7. Success / growth of organized retail sector is tried and tested. 8. No scope or individual bargaining. 9. Constant growth and innovation –

opportunities exist in retail business. 10. Negative working capital requirement. Negative characteristics a) Low initial return. b) Easy negative publicity. c) Non-standard and long working hours.

POPULAR ORGANISED RETAIL POPULAR ORGANISED RETAIL FORMATSFORMATS

Hypermarket or Super centersHypermarket or Super centers: : Offers highly Offers highly diversified merchandise grocery, toys, diversified merchandise grocery, toys, hardware camera, electronics. Spans more hardware camera, electronics. Spans more than 1 lac sq ft of space, sporting goods etc. than 1 lac sq ft of space, sporting goods etc. Located outsideLocated outside city centre. Eg: Wal-Mart, city centre. Eg: Wal-Mart, Carrefour Big bazaar, Spencer’s Carrefour Big bazaar, Spencer’s hypermarket, Trent’ Star Indiahypermarket, Trent’ Star India. .

SupermarketSupermarket: : It is focused on foods, grocery It is focused on foods, grocery and household items and is generally and household items and is generally located in residential areas.10,000 to 30,000 located in residential areas.10,000 to 30,000 sq ft. Food world is an example. sq ft. Food world is an example.

Departmental StoreDepartmental Store: : It carries various It carries various ‘departments’ such as apparel, house ware, ‘departments’ such as apparel, house ware, furniture, jewellery, appliances. Much furniture, jewellery, appliances. Much smaller than a hypermarket in terms of smaller than a hypermarket in terms of space and SKUs. 30,000 to 1 lac sq ft.Eg: space and SKUs. 30,000 to 1 lac sq ft.Eg: Shopper’s Stop, West side, Life style, Ebony. Shopper’s Stop, West side, Life style, Ebony.

POPULAR ORGANISED RETAIL POPULAR ORGANISED RETAIL FORMATSFORMATS

Convenience StoreConvenience Store: : Accessibility is what this Accessibility is what this format offers. It is conveniently located in format offers. It is conveniently located in crowded neighbourhoods. Open long hours crowded neighbourhoods. Open long hours and 7 days a week. 2000 to 3000 sq ft. Eg: and 7 days a week. 2000 to 3000 sq ft. Eg: Convenio, 7-Eleven. Convenio, 7-Eleven.

Exclusive OutletExclusive Outlet: : These stock a single brand. These stock a single brand. Can be company owned or franchised. Eg: Can be company owned or franchised. Eg: Raymond, Vimal, LG, Samsung, Titan.Raymond, Vimal, LG, Samsung, Titan.

Discount StoreDiscount Store: : These provide ‘no frill’ These provide ‘no frill’ service. These focus on providing items at a service. These focus on providing items at a cheaper price. Subhiksha is an example of cheaper price. Subhiksha is an example of this.this.

Cash-n-carryCash-n-carry: : This is a B2B format. Here the This is a B2B format. Here the retailer sells it to large institutional retailer sells it to large institutional customers. Metro (in Bangalore, Hyderabad, customers. Metro (in Bangalore, Hyderabad, Mumbai, Kolkata) is an example. Mumbai, Kolkata) is an example.

RETAILING IN INDIARETAILING IN INDIA Retailing in India is one of the significant Retailing in India is one of the significant

contributors to the Indian economy and contributors to the Indian economy and accounts for about 10% of the GDP and accounts for about 10% of the GDP and employment of around 8%.employment of around 8%.

It is expected to grow at a rate of 25% because It is expected to grow at a rate of 25% because rising income, changing lifestyle and rising income, changing lifestyle and demographic patterns.demographic patterns.

However this sector is in a highly fragmented However this sector is in a highly fragmented state – as per estimates over 12 million outlets state – as per estimates over 12 million outlets operate in the country. But only 4% of these are operate in the country. But only 4% of these are larger than 500 Sq ft in size.larger than 500 Sq ft in size.

As against 12 million outlets in India there are As against 12 million outlets in India there are only one million in USA but it caters to a retail only one million in USA but it caters to a retail market which is almost 12 times larger.market which is almost 12 times larger.

Per capita retail space in India is 2 sq ft where Per capita retail space in India is 2 sq ft where as in USA it is 16 sq ft.as in USA it is 16 sq ft.

RETAILING IN INDIARETAILING IN INDIA The retail sale was around $380 billion in 2008, The retail sale was around $380 billion in 2008,

compared to $300 billion on 2007. According to a compared to $300 billion on 2007. According to a study by the Associated Chambers of Commerce study by the Associated Chambers of Commerce and Industry (ASSOCHAM), year-on-year growth and Industry (ASSOCHAM), year-on-year growth will remain between 30-35% and is likely to reach will remain between 30-35% and is likely to reach more than $450 billion by the end of 2010. more than $450 billion by the end of 2010.

IT IS DISTRIBUTED AS FOLLOWS:IT IS DISTRIBUTED AS FOLLOWS:

Food & Grocery……………. 77% Food & Grocery……………. 77%

Clothes……………………… 7% Clothes……………………… 7%

Durables……………………. 4% Durables……………………. 4%

Health & Beauty…………… 2% Health & Beauty…………… 2%

Home furnishing…………… 2% Home furnishing…………… 2%

Medical services…………… 2% Medical services…………… 2%

Books & Music…………….. 1% Books & Music…………….. 1%

Footwear…………………… 1%Footwear…………………… 1%

ORGANISED RETAIL IN INDIAORGANISED RETAIL IN INDIA

ORGANISED RETAIL IN INDIAORGANISED RETAIL IN INDIA BMI ( BUSINESS MONITOR INTERNATIONAL) BMI ( BUSINESS MONITOR INTERNATIONAL) REPORT REGARDING ORGANISED RETAILING IN REPORT REGARDING ORGANISED RETAILING IN INDIA STATES:INDIA STATES:““The Q409 BMI India Retail Report predicts that The Q409 BMI India Retail Report predicts that total retail sales will grow from US$357bn in total retail sales will grow from US$357bn in 2008 to more than US$711bn by 2013. Strong 2008 to more than US$711bn by 2013. Strong underlying economic growth, population underlying economic growth, population expansion, the increasing wealth of individuals expansion, the increasing wealth of individuals and the rapid construction of organised retail and the rapid construction of organised retail infrastructure are key factors behind the infrastructure are key factors behind the forecast growth. As well as an ever-expanding forecast growth. As well as an ever-expanding middle- and upper-class consumer base, there middle- and upper-class consumer base, there will also be opportunities in India’s tier II and will also be opportunities in India’s tier II and tier III cities. The greater availability of tier III cities. The greater availability of personal credit and a growing vehicle personal credit and a growing vehicle population that provides improved mobility population that provides improved mobility also contribute to a trend towards annual retail also contribute to a trend towards annual retail sales growth of 15% in US dollar terms.sales growth of 15% in US dollar terms.

ORGANISED RETAIL IN INDIAORGANISED RETAIL IN INDIA India’s nominal GDP was US$1.17trn in 2008. India’s nominal GDP was US$1.17trn in 2008. Average annual GDP growth of 6.5% is predicted by Average annual GDP growth of 6.5% is predicted by BMI to 2013.With the population forecast to increase BMI to 2013.With the population forecast to increase from an estimated 1.19bn in 2008 to 1.27bn by from an estimated 1.19bn in 2008 to 1.27bn by 2013, GDP per capita is expected to expand by 2013, GDP per capita is expected to expand by nearly 59% by the end of the forecast period, to nearly 59% by the end of the forecast period, to reach a projected US$1,563. Our assumption of reach a projected US$1,563. Our assumption of consumer spending per capita is for a rise from consumer spending per capita is for a rise from US$594 in 2008 to US$1,105 in 2013. The growth in US$594 in 2008 to US$1,105 in 2013. The growth in the overall retail market will be driven, in large part, the overall retail market will be driven, in large part, by the explosion in the organised retail market. By by the explosion in the organised retail market. By this, we mean the familiar Western concept of chain this, we mean the familiar Western concept of chain outlets, department stores, supermarkets, etc. outlets, department stores, supermarkets, etc. According to Investment Commission of India (ICI) According to Investment Commission of India (ICI) data, this segment accounted for US$12.1bn of data, this segment accounted for US$12.1bn of sales in 2006, or 4.6% of the total retail segment. sales in 2006, or 4.6% of the total retail segment. BMI forecasts that organised retail sales will reach BMI forecasts that organised retail sales will reach US$76.2bn by 2013, representing 10.7% of the US$76.2bn by 2013, representing 10.7% of the total”.total”.

ORGANISED RETAIL PIEORGANISED RETAIL PIE- AS OF NOW- AS OF NOW

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119

8

8

74 3 3 3 3 2

Clothing

food & groceies

consumer durables

furniture & furnishing

footwear

catering services

watch

books & music

moblie accessries

heath & beauty

jewellery

enterainment

MAJOR FACTORS THAT CONTRIBUTE TO MAJOR FACTORS THAT CONTRIBUTE TO MORDERNISATION OF RETAILINGMORDERNISATION OF RETAILING

Economic developmentEconomic development Improvements in civic situation and Improvements in civic situation and

infrastructureinfrastructure Proactive social changes.Proactive social changes. Increase in bargaining powers of the Increase in bargaining powers of the

retailers.retailers. Changes in supportive Govt policies.Changes in supportive Govt policies. Increased investment in retailing.Increased investment in retailing. Spread of IT. Spread of IT.

SWOT ANALYSIS OF ORGANISED RETAIL SWOT ANALYSIS OF ORGANISED RETAIL INDIAINDIA

FAVORABLE FACTORS TO GROWTH OF FAVORABLE FACTORS TO GROWTH OF ORGANISED RETAIL IN INDIAORGANISED RETAIL IN INDIA

GDP growth has been 9% before melt down. It is expected to be 5 to 6% now.

Increased disposable income leading to greater purchasing power.

Big business houses have entered in retail sector.

Availability of quality retail space . People seeking convenience and ambience:

mall mania. Quality, brand and fashion consciousness. Upsurge in bank lending / credit card facilities. Changing demographics: 60% of people below

35 years of age . Growth in spending power of consuming segment. Dual income families on the rise. Increase in number of women working..

FACTORS UNFAVOURABLE TO ORGANISED FACTORS UNFAVOURABLE TO ORGANISED RETAIL SECTOR In INDIARETAIL SECTOR In INDIA

Barriers to financing: Lack of industry status.Barriers to financing: Lack of industry status. Government has allowed 51% foreign direct Government has allowed 51% foreign direct

investment (FDI) in the India retail sector to investment (FDI) in the India retail sector to single brand shops only. This has made the single brand shops only. This has made the entry of global retail giants to organized entry of global retail giants to organized retail sector in India difficult. But the global retail sector in India difficult. But the global retail giants like Tesco, Wal-Mart, and Metro retail giants like Tesco, Wal-Mart, and Metro AG are entering the organized retail sector AG are entering the organized retail sector in India indirectly through franchisee in India indirectly through franchisee agreement and cash and carry wholesale agreement and cash and carry wholesale trading.trading.

Absence of many global players in pure Absence of many global players in pure retailing is inhibiting technological growth retailing is inhibiting technological growth and professionalism.and professionalism.

FACTORS UNFAVOURABLE TO ORGANISED FACTORS UNFAVOURABLE TO ORGANISED RETAIL SECTOR IN INDIARETAIL SECTOR IN INDIA

Supply chain bottlenecks: Distribution logistics Supply chain bottlenecks: Distribution logistics constraints, wastages of farm produce up to constraints, wastages of farm produce up to 20%20%

They fail to match the certain services that They fail to match the certain services that Kirana shops provide in India.Kirana shops provide in India.

Lack of trained and skilled manpower. Severe Lack of trained and skilled manpower. Severe shortage of competent retail professionals.shortage of competent retail professionals.

Structural impediments: Low urbanization.Structural impediments: Low urbanization. High cost of real estate and pro-tenant rental High cost of real estate and pro-tenant rental

laws.laws. Complex taxation system.Complex taxation system.

RECENT SLOWDOWN IN ORGANISED RECENT SLOWDOWN IN ORGANISED RETAILINGRETAILING

India's organized retail sector will witness a India's organized retail sector will witness a slowdown in 2009. The sales growth will go slowdown in 2009. The sales growth will go down to 8-10 per cent as against 34% in 2007.down to 8-10 per cent as against 34% in 2007.

As per KPMG report the country's retail sector As per KPMG report the country's retail sector saw a sales decline of 11% due to adverse saw a sales decline of 11% due to adverse impact on footfalls, low conversion ratio and impact on footfalls, low conversion ratio and working capital availability, among othersworking capital availability, among others

As per the report the slow down in organized As per the report the slow down in organized retail might continue for 12-18 months, retail might continue for 12-18 months, whereby India will not achieve her 2012 target. whereby India will not achieve her 2012 target. Revised estimate of Organized retail’s share is Revised estimate of Organized retail’s share is 10.4 percent of the overall retail market by 10.4 percent of the overall retail market by 2012, against an earlier estimate of 16 percent 2012, against an earlier estimate of 16 percent . ( Current share of organized retail is around 5 . ( Current share of organized retail is around 5 %) %)


‘‘Slowing sales resulting in lower inventory turnover Slowing sales resulting in lower inventory turnover and increasing working capital requirements to and increasing working capital requirements to fuel growth have resulted in liquidity pressures for fuel growth have resulted in liquidity pressures for many domestic retailers,’ KPMG official.many domestic retailers,’ KPMG official.

As a result of the slowdown in footfalls retailers are As a result of the slowdown in footfalls retailers are taking alternative measures. “Be it store taking alternative measures. “Be it store rationalization, change of supply chain, rationalization, change of supply chain, consolidation of operations, improvement in IT consolidation of operations, improvement in IT infrastructure, retailers need to think quick to infrastructure, retailers need to think quick to protect their margins,” - Neil Austin, KPMG’s protect their margins,” - Neil Austin, KPMG’s Global Head of Markets. Global Head of Markets.

As per the report, retailers are expected to focus As per the report, retailers are expected to focus more on food and consumer goods rather than more on food and consumer goods rather than lifestyle products. They may concentrate more tier lifestyle products. They may concentrate more tier II and tier III cities as incomes in cities dries up.II and tier III cities as incomes in cities dries up.


The Future Group and Reliance Retail have put on The Future Group and Reliance Retail have put on hold their cash & carry operations. Subhiksha have hold their cash & carry operations. Subhiksha have halted operations. Aditya Birla Retail and Reliance halted operations. Aditya Birla Retail and Reliance Retail have also closed several stores to conserve Retail have also closed several stores to conserve cash. Cash-strapped Vishal Retail is closing stores cash. Cash-strapped Vishal Retail is closing stores and has no plans to open more next year, but will and has no plans to open more next year, but will expand through the franchisee route, .expand through the franchisee route, .

Global organized retailers - Wal-Mart, Tesco, Global organized retailers - Wal-Mart, Tesco, Carrefour have been waiting to enter the Indian Carrefour have been waiting to enter the Indian market. But now they are weary because large market. But now they are weary because large domestic retailers have held back expansion domestic retailers have held back expansion plans . plans .

But analysts are optimistic that retailers will re-But analysts are optimistic that retailers will re-strategize and overcome the problem. Real estate strategize and overcome the problem. Real estate rentals (a high component of cost) have fallen rentals (a high component of cost) have fallen which will work in the retailers' favour. which will work in the retailers' favour.

Retail strategy and Retail strategy and planningplanning

Retailing ConceptRetailing Concept

Retail strategy Retail strategy A retail strategy identifies the following:A retail strategy identifies the following:

The target market – the segment of the The target market – the segment of the market the retailer wants to focus on.market the retailer wants to focus on.

The retail format – which represents the retail The retail format – which represents the retail mix which comprises of the merchandise/ mix which comprises of the merchandise/ services, pricing policy, advertising/ services, pricing policy, advertising/ promotion programme, location, store design/ promotion programme, location, store design/ visual merchandise. The retail mix must be visual merchandise. The retail mix must be directed towards the needs of the customer.directed towards the needs of the customer.

A sustainable competitive advantage – which A sustainable competitive advantage – which enables the retailer to have an edge over its enables the retailer to have an edge over its competition with a futuristic approach. competition with a futuristic approach.

Developing a Sustainable Competitive Advantage

To develop Sustainable Competitive advantage To develop Sustainable Competitive advantage over its competitors a retailer must address the over its competitors a retailer must address the following important aspects of retail business:following important aspects of retail business: Customer loyaltyCustomer loyalty LocationLocation Human resource managementHuman resource management Merchandise and its displayMerchandise and its display Supply chain management and vendor relationsSupply chain management and vendor relations Customer service.Customer service. Retail store efficiencyRetail store efficiency Information systemInformation system

Developing a Sustainable Competitive Advantage Customer loyaltyCustomer loyalty: This implies the presence of a : This implies the presence of a

customer base that is committed to shopping in the customer base that is committed to shopping in the retailer’s outlets. Loyalty just does not mean retailer’s outlets. Loyalty just does not mean preference over other competitors but an innate preference over other competitors but an innate reluctance to switch over to others. Loyal reluctance to switch over to others. Loyal customers customers are the backbone of a business. are the backbone of a business. An important way to achieve customer loyalty is by An important way to achieve customer loyalty is by ‘positioning’. Positioning is creating a distinctive ‘positioning’. Positioning is creating a distinctive image of the retailer in the customer’s mind image of the retailer in the customer’s mind relative to its competitors. relative to its competitors. A clear concise identity and image needs to be built in the minds of the customers. This involves branding the store. The brand name, logo, slogan are all important considerations.

Loyalty (Frequent shopper) programs which are a Loyalty (Frequent shopper) programs which are a part of CRM are designed to enhance customer part of CRM are designed to enhance customer loyalty. Purchase information, stored in a data bank loyalty. Purchase information, stored in a data bank (Data warehouse), are used to design and build (Data warehouse), are used to design and build these programmes.these programmes.

Developing a Sustainable Competitive Advantage LocationLocation: This is one of the most important : This is one of the most important

strategic decisions in retail business, both for a strategic decisions in retail business, both for a stand alone retail centre or a retail chain. The stand alone retail centre or a retail chain. The location decides the coverage of the store in location decides the coverage of the store in terms of customers who can conveniently terms of customers who can conveniently patronize the store on a regular basis. It can be a patronize the store on a regular basis. It can be a very vital competitive advantage .very vital competitive advantage .Conformity with the positioning strategy, proximity, accessibility, visibility, traffic flow etc ccessibility, visibility, traffic flow etc are some of the important considerations while are some of the important considerations while selecting a store location. The type of store also selecting a store location. The type of store also influences location decision.influences location decision.

Human Resource managementHuman Resource management:: Retailing is Retailing is essentially service marketing. Hence the quality essentially service marketing. Hence the quality of employees play a very important part. Need of employees play a very important part. Need for efficient and motivated team is essential. for efficient and motivated team is essential. Sam Walton the founder of Wal-Mart called his Sam Walton the founder of Wal-Mart called his employees associates and considered them as employees associates and considered them as greatest assets of his company. greatest assets of his company.

Developing a Sustainable Competitive Advantage Merchandise and its display : To create a unique

merchandise may be difficult for a retailer because the competitors also sell the same national or international brands. Some retailers develop their own ‘private –label brands’ and thus be distinctive. Category management relates to decision making Category management relates to decision making regarding the categories of the items which need to regarding the categories of the items which need to be kept and prominently displayed. be kept and prominently displayed.

By employing better visual management techniques By employing better visual management techniques a retailer can gain competitive advantage.a retailer can gain competitive advantage.

Supply chain management and vendor relationshipSupply chain management and vendor relationship:: This covers the sourcing and buying decisions. The This covers the sourcing and buying decisions. The volume of buying is one of the most important volume of buying is one of the most important negotiating factor as this determines the price (and negotiating factor as this determines the price (and the credit period) at which the retailer canthe credit period) at which the retailer can

Developing a Sustainable Competitive Advantage buy from the manufacture. The benefits derived buy from the manufacture. The benefits derived

out of bulk buying can be passed on to the out of bulk buying can be passed on to the customer and thus enable a retailer to have a customer and thus enable a retailer to have a competitive advantage over its competitors.competitive advantage over its competitors.

Developing strong and special relationship with Developing strong and special relationship with vendors can enable retailers to gain exclusive vendors can enable retailers to gain exclusive rights to sell in a particular region or to get rights to sell in a particular region or to get scarce items which are in short supply.scarce items which are in short supply.

Customer Service:Customer Service: This can be a very significant This can be a very significant competitive advantage. There are two elements competitive advantage. There are two elements of customer service :of customer service :1. Expected customer service – This is the 1. Expected customer service – This is the

service level that customers demand from any service level that customers demand from any retailer such as basic courtesy from the retail retailer such as basic courtesy from the retail staff.staff.

2. Augmented customer service – These are 2. Augmented customer service – These are activities that enhances shopping experiences activities that enhances shopping experiences and these are the special customer services and these are the special customer services that give retailers competitive advantages.that give retailers competitive advantages.


Retail store efficiency :Retail store efficiency : By achieving higher retail By achieving higher retail store efficiency than its competitors a retailer can store efficiency than its competitors a retailer can attain competitive advantageattain competitive advantage. .

The important parameters a retailer needs to

measure and monitor retail store efficiency are : Space utilization factor – this can be measured

by net return/ sq.ft. Space cost in most of the situations is a major cost element, so effective space utilization is vital.

‘Margin to turn over ratio’ - is a very obvious financial indicator that needs to be monitored.

Employee productivity – this is a ratio of sales to the number of employees.


Information systemInformation system: Superior Information : Superior Information system can provide substantial competitive system can provide substantial competitive advantage to a retailer over his competitors. advantage to a retailer over his competitors. Use of IT helps the retailers in getting the Use of IT helps the retailers in getting the customers what they want, when they want in a customers what they want, when they want in a cost efficient manner. For instance information cost efficient manner. For instance information flows seamlessly from Wal-mart to its vendors flows seamlessly from Wal-mart to its vendors to facilitate quick and efficient merchandise to facilitate quick and efficient merchandise replenishment. It results in better inventory replenishment. It results in better inventory management reducing stock out and inventory management reducing stock out and inventory cost. Wal-marts huge database enables it to cost. Wal-marts huge database enables it to fine tune merchandise assortment on a store-fine tune merchandise assortment on a store-by-store, category–by –category basis.by-store, category–by –category basis.

Planning for starting a retail Planning for starting a retail businessbusiness

Important factors to be considered while Important factors to be considered while planning to enter in to retail business :planning to enter in to retail business :

1. Evaluation of financial capabilities –1. Evaluation of financial capabilities –

a. Consider both internal and borrowed sources.a. Consider both internal and borrowed sources. b. Choice of format (size) can be limited with a b. Choice of format (size) can be limited with a

pragmatic evaluation of finances.pragmatic evaluation of finances.

c. Detailed analysis and breakup should be c. Detailed analysis and breakup should be done done of startup cost and working capital. of startup cost and working capital.

d. Supplier credit may not be available at the d. Supplier credit may not be available at the initial stages. This aspect should be initial stages. This aspect should be

remembered while planning the working remembered while planning the working capitalcapital


2.2. Finalisation of Store format.Finalisation of Store format.

- This is very important, considering the wide - This is very important, considering the wide rangerange

of formats existent in the market. The followingof formats existent in the market. The following issues need to be considered:issues need to be considered: a. Personal attachment /interest in the product a. Personal attachment /interest in the product mix on the part of the retailer is desirable. mix on the part of the retailer is desirable.

The retailer must have reasonable level of The retailer must have reasonable level of knowledge regarding the product mix.knowledge regarding the product mix.

b. The product mix should cater to the need of b. The product mix should cater to the need of the target clientele. the target clientele.

c. Existence of an established supply chain.c. Existence of an established supply chain. d. Possibilities of expanding and openingd. Possibilities of expanding and opening other outlets in future.other outlets in future. e. Strategic choice of ‘high volume-low margin’ e. Strategic choice of ‘high volume-low margin’

or ‘lowor ‘low volume-high margin’ products.volume-high margin’ products.


3. Market Research to be conducted.3. Market Research to be conducted. For determining expected customer profile, For determining expected customer profile,

preference, volume (Demographics preference, volume (Demographics i.e.i.e. age age income, lifestyle, gender, community etc. to be income, lifestyle, gender, community etc. to be known)known)

For determining suitable timings of the store and For determining suitable timings of the store and style of customer servicing.style of customer servicing.

For analysis of market competition. It is essential For analysis of market competition. It is essential forfor

- positioning the retail outlet uniquely. - positioning the retail outlet uniquely. - anticipating the competitor's business - anticipating the competitor's business

moves moves and thus strategising for the future.and thus strategising for the future. - knowing competitor’s market share, - knowing competitor’s market share,

strategic strategic focus, vendor relations, locational focus, vendor relations, locational advantages / advantages / disadvantages. disadvantages.


4. Weighing the advantages of having a retail chain.

Advantages of establishing a retail chain are: - many departments can be centrally located

and their costs shared by various outlets. - centralised buying gives power to negotiate better. - greater visibility. Enhanced customer loyalty because of goodwill. - lower costs of subsequent projects because

of previous experience of implementing projects.

- possibilities of franchising leading to faster growth.

Types of ownership in retailingTypes of ownership in retailing1. Independently owned:1. Independently owned: In this owner only In this owner only

owns one retail storesowns one retail stores2. Retail chain :2. Retail chain : In this form there are multiple In this form there are multiple

retail stores under a common ownership.retail stores under a common ownership.3. Franchising:3. Franchising: In this the principal company In this the principal company

(franchiser) offers expertise/ technology/ brand (franchiser) offers expertise/ technology/ brand name to others (franchisee) for a fee and helps name to others (franchisee) for a fee and helps in upgrading their operations. Essentially there in upgrading their operations. Essentially there are two types of franchisee arrangements are two types of franchisee arrangements

1. Product/trade mark franchising ( eg: petrol 1. Product/trade mark franchising ( eg: petrol pumps,pumps,

auto dealers etc.) auto dealers etc.) 2. Business format franchising ( eg: McDonalds, 2. Business format franchising ( eg: McDonalds, Wimpy etc) Wimpy etc)

Types of ownership in retailingTypes of ownership in retailing

4. Leased department: 4. Leased department: In this the store In this the store leases out a department / specialty store leases out a department / specialty store to an outside party. The lessee (proprietor to an outside party. The lessee (proprietor of leased department) normally pays a of leased department) normally pays a percentage of sales as rent to the store.percentage of sales as rent to the store.

5. consumer Co operative:5. consumer Co operative: In this form In this form the retail firm is owned by a group of the retail firm is owned by a group of customers who have invested in the customers who have invested in the company. Consumers elect officers to company. Consumers elect officers to manage operations. They share the profits manage operations. They share the profits or savings that accrue. The principle or savings that accrue. The principle objective of co operatives however is to objective of co operatives however is to render services to the members (owners).render services to the members (owners).

Wheel of retailingWheel of retailingWheel of retailing is Wheel of retailing is a hypothesis of a hypothesis of M.P. McNair M.P. McNair explaining the explaining the patterns of change patterns of change in retailing.in retailing.

The hypothesis is The hypothesis is that new types of that new types of retailers cut prices retailers cut prices by lowering or by lowering or eliminating eliminating customer services, customer services, but once but once established they established they increase prices and increase prices and customer services customer services and so become and so become vulnerable vulnerable themselves to new, themselves to new, low-price retailers. low-price retailers.

Wheel of retailingWheel of retailing The wheel of retailing is based on four principles:The wheel of retailing is based on four principles:

1. There are shoppers who are very price sensitive1. There are shoppers who are very price sensitive they do not mind compromising on customer they do not mind compromising on customer services, wide selection and convenient location services, wide selection and convenient location for the sake of buying at lower prices.for the sake of buying at lower prices.2. Price sensitive shoppers are not loyal. They switch 2. Price sensitive shoppers are not loyal. They switch to retailers with lower prices.to retailers with lower prices.3. New retailers often have lower operating costs 3. New retailers often have lower operating costs than existing retailersthan existing retailers4. Retailers move up the wheel in order to increase 4. Retailers move up the wheel in order to increase sales, widen the target market and to enhance sales, widen the target market and to enhance their image. their image. Although the wheel theory was formulated with Although the wheel theory was formulated with respect to the evolution of retailing institutions is the respect to the evolution of retailing institutions is the US, it has been observed to hold good in awide US, it has been observed to hold good in awide variety of national settings.variety of national settings.

Scrambled merchandising Scrambled merchandising is offering of merchandises which Scrambled merchandising is offering of merchandises which

are not typically associated with the store type, such as are not typically associated with the store type, such as clothing, cosmetics in a drug store or belts, hats, T shirts in clothing, cosmetics in a drug store or belts, hats, T shirts in a shoe store. a shoe store.

There is a tendency on the part of retailers to increase their There is a tendency on the part of retailers to increase their width of assortment. Scrambled merchandising takes place width of assortment. Scrambled merchandising takes place when a retailer adds goods and services that may be when a retailer adds goods and services that may be unrelated to each other and to the retailer’s original unrelated to each other and to the retailer’s original business.business.

Scrambled merchandising is resorted to because of several Scrambled merchandising is resorted to because of several reasons :-reasons :- retailer wants to revenues (fast selling or highly retailer wants to revenues (fast selling or highly

profitable goods are added) profitable goods are added) customers make more impulse purchases customers make more impulse purchases customers like one stop shopping customers like one stop shopping different target markets can be addressed.different target markets can be addressed. impact of seasonality is reduced.impact of seasonality is reduced.

Human Resource Management in Retailing

Why is HR so important in retailing? Retailing is a service industry. Interactions of the

employees with the customers is very high. So motivated employees are needed. Strong internal marketing is required in service industries.

Team effort is vital for success Employee productivity is an important criterion

for retailing. Employee cost is significant in retailing.

Part time employees are often used. Lack of commitment and skill of such employees can be a serious problem. High degree of customer contact can expose this leading to adverse fallouts.


What should be the extent of centralization / decentralization? This is an important decision to make. Centralization is the extent to which the

company may be willing to delegate decision making at the corporate level, and not at the local/ regional/store level.

Highly centralized decision making structure is common among large international retail chains.

Their success can be largely attributed to the centralized system of decision making and operation that they have perfected. Indian retailers are trying to master a centralized system of operations.


Advantages of centralization are: Lower manpower costs: Centralized system of

decision making enables the elimination of certain designations at store level, resulting in lower overheads.

Efficient buying: With the help of centralized structure, the retail chains can buy at a lower price due to bulk and efficient buying.

Better quality of manpower: This is because it is possible to pay higher to a few at the corporate level. The benefits derived from their expertise are shared and enjoyed by al the stores.

Economy of scale in advertisement: Centralized advertisement enables good media bargains. Maintenance of confidentiality: Franchises do not have access to key secret data regarding merchandising, procedures, systems, prices etc.


Disadvantages of decentralization: Bureaucracy: Store managers have to take

permission, even to make small changes, from the corporate personnel. They have no scope of creativity.

Non fulfillment of local demands: Customizing according to regional/ local taste is not possible. Indian tastes/ preferences for many items vary from state to state.

Slow response to changes: Difficulty in meeting local competition.

Higher distribution costs: The cost of transportation from centralized warehouse to individual stores have to be borne extra by the retail company.


What are the major divisions of a large retail chain stores? Strategic management whose tasks are:

To develop a retail strategy To identify target market To determine retail format To design organizational structure To select locations of stores.

Merchandising management whose activities are:

Buying merchandise Select and identify vendors Evaluate vendors Negotiate price with vendors Place orders on vendors.


Controlling merchandise strategy Making budget plans Ensuring timely supplies Reviewing stock positions and taking actions to replenish

stocks. Pricing the merchandise

Store management whose major tasks are: Recruitment and training of store personnel Planning work schedules Evaluating personnel Maintaining store facilities Receiving merchandise Locating and displaying merchandise. Taking care

of inventories. Assisting customers Taking feedbacks


Administrative and support management. It is the support wing of the retail management responsible for :

Promoting the company and merchandise. Managing HR functions Ware housing and logistics. Establishing financial controls.

Retail store location

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Store location is one of the most important decision made by the retailer. A right or wrong choice of location of a store could be the difference between business failure and success.

While choosing a store, location is one of the prime consideration of a customer. Hence location decisions can be used as a sustainable competitive advantage.

Relocating a store is extremely difficult, so a judgment regarding store location should be well thought-out

Retail store operations

Retail Store Operations Management

Why is retail operations so critical in retailing?

• Retail stores is the interface with the customer. Mistakes at this level can cause irreparable damage to the reputation of the retail organizations. This being at the ultimate delivery end it is the one that is visible to the customer. Hence the efficiency with which the retail outlets are managed are very critical for the image of the retail organization.•The responsibility of a stores manager is greatly influenced by the level of centralization


What are the most important tasks to be performed to effectively control the store operations?1. Man management:

The retail outlets are generally labour intensive. To recruit, train, motivate and train the store employees is itself a big and crucial job. To be able to build up a loyal and motivated team at store level is very important. Wal-Mart , for instance considers this aspect of business most vital and so Sam Walton called the employees ‘associates’.


2. Receiving merchandise:

This task involves receiving and checking the merchandise when it arrives at the store from the central store or directly from the vendor. Activities to be performed are – tallying, counting the goods, checking for damages, code numbers etc.

3. Displaying the merchandise: Merchandise display is a very important activity. This needs planning because the merchandise requires to be displayed logically and appropriately – this an art .

Stores personnel need to constantly arrange the items on the shelf to ensure FIFO system.


4. Preserving the merchandise:This involves right storage and material handling practices. Perishable goods having specified shelf life pose greater problems.

5. Providing customer service: This involves attending to customer’ queries,

complaints, grievances, suggestions etc 6. Handling rejections: It is essential to return the rejected/

damaged item immediately to the warehouse/ vendor.

7. Checking store merchandise: Regular checking of items on the shelves for

missing price tags or damaged items needs to be undertaken by the stores staff.


8. Verifying physical stock: The tally of the physical stock and the stock

shown as available on computer need to be done on a periodic basis.

9. Controlling shrinkage: Systems need to be in place to avoid

pilferages / wastage. Research has shown most of the times it is the staff who are responsible for shrinkage.

10. Indenting: This is a key function which involves

providing timely and correct information to the buyer (in the organization) regarding the quantities of the SKUs that need to be replenished. ERP systems have made this activity fairly simple for store personnel.


11. Administrative and maintenance functions: The equipments and assets of the store

needs to be maintained in a planned manner.

12. Evaluating store performance: There are several parameters used for

evaluating store performance. Some of them are

a. Sales / Sq meter. b. Sales to staff ratio. c. Expenditure under different heads to sales ratio. d. Customer count per week or month e. Average sales per hours.

f. Analysis of sales during peak and lean periods g. Average sales / footfall. h. Achievement of targets (like profit , sales ,

profit / sales of the store).


What are the roles and responsibilities of a store manager? What are critical points he should address? • Some of the key responsibilities of a retail

store manager are: • Designing & executing plans to increase

sales & profits, reduce shrink and control costs. Managing all aspects of the operations of the store in order to ensure maximum sales as well as profitability.

• Enhancing customer satisfaction via maximizing the shopping experience of customers. That is Promoting & maintaining superior customer service standards.

• Supervising, recruiting, motivating & scheduling the staff that meets organization's philosophies, policies and procedures. Leading by example


• Communicating company objectives, strategies, policies and procedures to retail Store level Staff and management.

• Directing & monitoring merchandising levels & product presentations.

• Providing the daily/weekly/ monthly flow of reports paperwork to relevant departments & authorities.

• Protecting company assets through the implementation of Risk management, and loss prevention

• Managing the day-to-day store operations inclusive of having a clean, safe and well-maintained interior and exterior retail store facility.

• Meeting all local/ national laws and regulations pertaining to the retail sector.


• The job of a retail store manager essentially is to oversee the everyday running of a retail store. He must possess the required organizational skills which includes the ability of paying attention to detail as well as coordinating and following-up matters. The job requires the ability to manage multiple priorities and management skills to plan, enforce discipline, communicate, train, and coach.

• Critical points for a stores manager to remember :

•Servicing the customer comes first - Customer is the king so make the customer feel special.

•Appearances do matter - Display merchandise attractively. Items should be shown to advantage (Placing special merchandise at eye level, placards and signs are methods of grabbing attention).


•Getting rid of Unsold / slow moving merchandise –It should be done in a planned manner. The product lines that are not selling well should be marked down (discounts) to sell them off fast.

•Timely ordering of inventory - Inventory levels should be monitored and kept in adequate amounts at all times or else customers may be lost for ever.

•Hiring the right people; training & motivating them -Ensure right work distribution and management of staff’s time is done with the changing priorities during a day.

•Effective use of retail software - Software are available for wide range of store activities like inventory management, Point Of Sale (POS), customer tracking, monitoring the movement of merchandise.

Managing store employees

What are the main aspects involved in effectively managing employees in retail stores?

Recruiting and selecting the store employees

Orientation and training of store employees Motivating and managing the store

employees Evaluating store employees and providing

feedback Rewarding and compensating the store

employees

Managing store employees - Recruiting and selecting the store

employees The following steps need to be undertaken for recruitment of a store employee Job analysis Locating prospective candidates Screening applicants ( short listing) to interview Selecting applicants

Job analysis: Job analysis is a systematic procedure to analyze the requirements for the job role and job profile. Job analysis can be further categorized into following sub components.

1. Job position: This refers to the designation of the job and employee in the organization.


employees 2. Job description: It refers to the activities that an

employee has to do in a particular job position. It describes the roles and responsibilities attached with the job position. It states the key skill requirements, the level of experience needed, level of education required, etc.

3. Job Worth refers to estimating the job worthiness i.e. how much the job contributes to the organization. It is also known as job evaluation. Job description is used to analyze the job worthiness. Roles and responsibilities helps in determining the outcome from the job profile. Once it is determined that how much the job is worth, it becomes easy to define the compensation strategy for the position.


employees Locating prospective employees: Getting suitable

people in retail industry is very important but at times very difficult. For recruitment at the store level, Levy & Weitz

suggest the following: Look beyond retail industry Use your employees as talent scouts Provide incentives for employee referrals Use your store front creatively.

Internet is becoming a popular method of advertising a vacancy and source for locating prospective employees.


employees Screening applicants for an interview: The job

analysis done previously helps in short listing candidates. The job description specifies the competencies required for a job position, hence this forms the guideline for short listing the applicants. The application form gives the details regarding the applicant’s qualifications, experience, previous compensation, employment history, reasons for leaving previous organizations, health history, references etc. References should be used, in a discerning and judicious manner, to verify information provided.Scientific and psychological tests related to intelligence, ability, personality etc helps to gain insights about the candidates.


employees Selecting Applicants: Personal interview is carried out for this. The following needs to be done: Preparation for the interview: An interview needs to be

conducted effectively hence it needs preparation on the part of a stores manager . The purpose is to effectively gather information about the candidate from the candidate himself. Behavioral interview is a popular method adopted for this purpose. Behavior based interviewing focuses on experiences, behaviors, knowledge, skills and abilities that are job related. It is based on the belief that past behavior and performance predicts future behavior and performance.

Conducting the interview: Broad based questions should be followed by specific questions. Questions should be posed in a manner so that it calls for long responses. Loaded or leading questions should not be asked.Interviewer should be a good listener and be able to sort out relevant / important information related to the job from the irrelevant/ unimportant ones.

Managing store employees - Orientation & training of new store employees Orientation Programs: Effective orientation programs are

designed to introduce new employees to a company's mission so that they begin to feel they are a vital part of the team. These are key to early productivity and improving employee retention. They need to be designed with the following in mind - Make new employees feel welcome and valued as key

players on the team. - Explain the mission/purpose of the company and the job so

employees can see the big picture. - Familiarize employees with rules, policies and procedures. - Help employees adapt to their new surroundings, learn who all the players are and how they work together.- Establish friendly relationships among co-workers managers.- Ensure new employees have all the information and tools they need to do their jobs.- Develop the long-term commitment to the organization.

Managing store employees - Orientation & training of new store

employees Training of store employees: These include both

structured and on the job training. Structured training programs: These are designed to

impart knowledge and basic skills that are needed to execute their jobs. Sales persons for instance are taught the company policies to deal with customers, product knowledge required to sell, use of POS terminals etc.These should be designed to be short and effective.

On the job training :It is the responsibility of supervisors and managers to train, qualify, and develop the new employees. The new employees learn their jobs while they are performing their duties under the guidance, coaching and supervision of their seniors. The new employees should be allowed the freedom to try various ways of doing their jobs. The seniors should help them to analyze their mistakes and successes and learn from their success and failures

Managing store employees - Motivating & managing the store employees Managers must provide effective leadership.

For doing this managers need to perform Task performance management: These are related

to planning, organizing, motivating, evaluating and coordinating activities

Group maintenance management: These are related to promoting teamwork and job satisfaction.

Democratic, Autocratic, Transformational leaders: Autocratic leaders do not involve their subordinates

during decision making process. They make the decisions and convey the same to their juniors.

Democratic leader on the other hand involves his juniors while making decisions. He seeks opinions/ information from the juniors and also shares his power and information with them.

Managing store employees - Motivating & managing the store

employees Transformational leaders: Transformational leadership inspires followers to trust the leader, perform behavior that contribute to the achievement of organizational goals, and perform at a high level. Transformational leadership occurs when a leader transforms, or changes, his or her followers, in three important ways that together result in followers trusting the leader, performing behaviors that contribute to the achievement or organizational goals, and being motivated to perform at a high level:1. Transformational leaders increase subordinates awareness of the importance of their tasks and the importance of performing them well.2. Transformational leaders make subordinates aware of their needs for personal growth, development and accomplishment.3. Transformational leaders motivate their subordinates to work for the good of the organization rather than exclusively for their own personal gain or benefit.

Managing store employees - Motivating & managing the store

employees Motivating employees:

Setting goals or quotas Connect effort with performance Connect performance with rewards

Maintaining morale Following helps help in maintaining morale:

Daily meeting on daily basis before opening of the store.

Educate the employees regarding firm’s finances, set realistic goals, celebrate achievement of goals.

Make employees important by displaying their names on the jobs they have done.

Managing store employees -Evaluation of employees & providing

feedback Evaluation system is designed by the HRD. But

evaluation should be done by the immediate supervisor. Supervisors should to trained to evaluate.

Mostly done once or twice in a year. But should be more frequent when inexperienced employees are being evaluated.

The employees need to be communicated regarding - the tasks expected from them - the expected performance level - the method of evaluation.

A formal and informal feedback system should be in existence. The basic objective of the feedback should be to allow and encourage the employees to take corrective steps.

Managing store employees-Rewarding & compensating the store employees Two types of rewards are given to store

employees for their work : Extrinsic Intrinsic

Extrinsic rewards are in the form of compensation in monetary terms , promotion and recognition given by the organization.

Intrinsic rewards are what the store employees get personally for doing the job well. It comprises of job satisfaction because the job is challenging.

Managing store employees-Rewarding & compensating the store

employees Types of compensation programs:

Salary Incentives

On percentage of sales Fixed salary + incentive or total incentive.

Quota bonus plans – bonus given when the quota is exceeded.

Group incentive plans – additional incentive based on the performance of the department.

Controlling costs in retail stores

The critical areas in controlling operating costs in retail stores are:

Increasing personnel utilization / labor productivity

Store maintenance activities

Energy management

Reducing inventory losses

Controlling costs in retail stores-Increasing personnel utilization/labor productivity Employee costs in stores is the largest operating

expense and hence needs to be monitored effectively

Labor scheduling is difficult and complex in retail stores because Multiple shifts Use of part time workers for 12 hrs and 7 days in a week Variation in customer traffic during the day and week Normal shopping patterns, hence the requirement of

staffs/ workers, are affected due to weather, holidays and sales promotions.

Because of the above reasons many stores use computer software to do labour scheduling in stores.

Sensibly reducing staffing during lean hours does not affect the sales.

Controlling costs in retail stores - Stores maintenance activities The cost of maintaining the interior and the exterior of

a store can be substantial. The activities related to maintaining the store is critical

because it affects the sales generated and also the life of the assets. Well maintained stores attracts customers and is a basic necessity for the goodwill of a store. Hence it is important and the money should be judiciously spent.

The maintenance of the interior includes activities related to the upkeep of the flooring, walls, ceiling, racks, air conditioning units, elevators, signage inside the store,, paintings, counters etc.

The maintenance of the exterior includes activities related to the upkeep of the parking lot, roads, boundary walls, external signage etc.

Controlling costs in retail stores - Energy management Retail operations are energy intensive enterprises.

Hence the performance and profitability of a retail stores is highly dependent on efficient energy management systems adopted by the stores.

The energy costs in stores include the costs of lighting, air-conditioning, operating the elevators/ escalators and other utilities.

The use of energy conservation devises and practices have become a must for controlling energy costs. Such devices/ practices are use of photo sensors to monitor the lighting, escalators and air-conditioning requirements of a particular area, considering the use of natural light while designing the stores etc. Devices controlling waste of water is popular.

Controlling costs in retail stores - Reducing inventory losses Shrinkage is one of the major issues in retail

stores management “Shrinkage is the difference between the

recorded value of inventory (at retail prices) based on the merchandise bought and received and the value of the actual inventory (at retail prices) in stores and distribution centers divided by the retail sales during the period”.

Say: Inventory as per record = Ir . Actual inventory count (observed)= Ia . Sales = S

Then Shrinkage % = [( Ir – Ia) / S] x 100 The loss on account of shrinkage ranges from

1% to 5% of sales.

Controlling costs in retail stores - Reducing inventory losses Shrinkages due to ‘shop lifting’ (theft by

customers) can be reduced by taking up following steps:Proper store design/ layout:

Special security arrangements for areas near store entrances, delivery areas and dressing rooms.

Providing clear visibility lines to store employees near entrance and exit by reducing rack heights so that they can see customers in the stores.

Dressing room entrances should be visible to store employees Possible areas where theft can occur should be near places

like ‘Cash wrap’ which are always staffed. ( Cash wraps are places where customers have their purchases placed in a bag)

Employee training: They should be trained to be observant, alert and visible.

Possible shoplifters should feel that employees are around.

Controlling costs in retail stores - Reducing inventory losses

Security measures: Closed circuit TV – some live and some dummy. Live CCTVs are

expensive so sometimes dummies ( non operating equipments looking like TV cameras) are put in places to deter shoplifting.

Chaining expensive merchandise so that they can not be removed by customers.

Placing Convex mirrors in proper positions so that a wide range of area can be viewed with the help of the mirror.

EAS (Electronic article surveillance) systems is a method that can be adopted to prevent shoplifting. In this system merchandises have special tags placed in them. These are removed while purchases are made. When a shoplifter tries to pass a detection device at the exit, an alarm is activated.Presence of guards, mirrors, CCTV can be an unpleasant experience for shoppers. But EAS is a good method because it is inconspicuous so it does not make the customers uncomfortable and shopping experience unpleasant.

Prosecution: Many retailers believe that prosecuting shoplifters is a good

deterrent.

Controlling costs in retail stores - Reducing inventory losses Shrinkage due to employee theft:

Research has shown that inventory loss due to employee theft is higher than due to shoplifting. So this needs to be seriously addressed. Some of the ways this can be are: By creating a trusting and supportive work environment that

encourages honesty and integrity. Employees must be made to feel that they are respected members of a team. Building up a highly committed team is essential.

By properly screening prospective employees. There are some honesty tests designed for this purpose.

By the use of security personnel to keep a watch. In addition to uniformed guards security personnel in plain clothes posing as shoppers are often used.

By adopting/ establishing security policies and control systems that deter theft:

Regularly checking trash bins where stolen items can be hidden.

Employees enter/ exit through designated entrances. Changing locks periodically Checking locker rooms of the employees. Providing customer receipts to all purchases made.

Stores design, Layout, Space planning & Visual

merchandising

Stores Design Stores design plays a very important role in

retail strategy because it : Enhances the image of the retail outlet Attracts new customers Creates a definite USP Generates excitement Facilitates easy movement inside the store Facilitates access to merchandise inside the store Ensures optimum utilization of retail space Ensures effective and desired presentation of merchandise

Reduces product search time for the customer Reinforces the marketing communication of the outlet Influences the service quality experience

Stores Design

There are certain basics of a good store design. Store design should be such that :It is consistent with the stores image Both the external and internal design should be in line with the type of image the retail organization wishes to create in the minds of the customer. For instance a discount stores should have a no-frills stores design to give the perception of low overheads.

It influences consumer behaviour positively:This objective is fulfilled by having the appropriate layout. For instance a grocery stores are organised to facilitate an orderly shopping trip and to display as much merchandise as possible. Yet boutiques are laid out in a free-form design that allows customers to browse. The purchasing behaviour of a customer is influenced by stores atmosphere.

Stores Design

It considers Costs Vs Value: The costs associated with store design should be commensurate with the value received in terms of higher sales and profit. Design should be cost effective in terms of space utilisation.

It has flexibility:- This is required to make periodic changes in plan or to give the store a new and fresh look. Flexibility can be incorporated by having modular designs – so that the store components can be easily moved and the store components can be modified. As merchandise mix changes the design needs to changed so flexibility is very desirable property of store design.

Atmospherics Atmospherics is the store's physical

characteristics that are used to develop a retail unit image and draw customers.

Atmospherics refers to the design of a stores atmosphere, to stimulate customers’ perceptual and emotional responses and thus affect their purchase behaviour. This is achieved with the help of Visual communicationsLightingColoursMusic Scent

Atmospherics

Four key components of atmospherics: 1.Exterior atmospherics

2. Interior atmospherics

3. Store layout

4. Visual merchandising

Exterior Atmospherics Exterior atmosphericsExterior atmospherics

All aspects of the physical All aspects of the physical environment found outside environment found outside the store are external the store are external atmosphericsatmospherics

This significantly affects store This significantly affects store traffic and sales traffic and sales

Elements of Exterior Elements of Exterior atmospherics are:atmospherics are:StorefrontMarquee ( it is the sign that displays the stores name)

VisibilityEntrancesUnique building designSurroundings of the store

Interior atmospherics Interior Atmospherics:

Interior atmospherics refers to all aspects of physical environment found inside the store

Key ingredients of interior atmospherics are flooring, walls, Lighting, colour, music, scents, store fixture design, paintings and level of cleanliness

This affects sales, time spent by the customer in the store, and approach/avoidance behavior of the target segment

The quality of interaction with the store personnel influences interior atmosphere.

Store Layout Store layout:

It is the interior retail store arrangement of departments or groupings of merchandise.

It is the physical organization of a store that creates specific traffic patterns, assists in the presentation of merchandise, and helps to create a particular atmosphere.

Efficient store layout pays adequate attention to- the expected movement of the customers

visiting the store - space allotted to customers to shop - adequate facilities for merchandise display

Customer friendly store layouts motivate shoppers to move around the store and shop more than what they had planned

Store Layout

Logical sequencing and category adjacency is essential in planning store layout

Store layout planning involves decisions about allocation of floor space, product groupings, and nature of traffic flow

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Store Layout

Types of retail store layout: Grid layout Race track layout Free form layout

Store LayoutGrid Layout

It is a layout or arrangement in which the retailer arranges the merchandise in gondolas or racks. This type of layout helps the customer to easily locate the merchandise.

Grid layout is generally found in grocery stores, discount stores, drug stores

Its characteristics are:Long gondolas in repetitive pattern.

Easy to locate merchandiseDoes not encourage customers to explore store

Allows more merchandise to be displayed

Cost efficient

Store Layout Advantages of Grid layout

Low costCustomer familiarityMerchandise exposureEase of cleaningSimplified securityPossibility of self- service

Disadvantages of Grid layoutPlain & uninterestingLimited browsingStimulation of rushed shopping behaviorLimited creativity in decor

Store Layout Race Track Layout

It’s a type of store layout that provides major aisle to facilitate costumer traffic.

Different departments are allotted separate space. So it is also called shop-in-shop layout. It provides easy accessibility to all the department of the store.

This type of layout is adopted by departmental stores. The objective of the design is to get the customer to visit multiple stores

Different departments generally distinguish themselves by distinctive decor and carpet flooring.

The entire layout of the retail layout is done in such a way that a customer can view many shops standing in a particular position.

It increases impulse purchase.

Store Layout Race track layout has a loop with a major aisle that has access to departments and store’s multiple entrances.

Draws customers around the store.Advantages are that 1. Facilitate customer traffic.2. Easy accessibility to all departments. 3. Encourages impulse buying. Disadvantage is that it requires large space.

Store Layout Free Form Layout

Fixtures and aisles arranged asymmetrically.

Pleasant relaxing ambiance doesn’t come cheap.

Abundant open space with select furniture and fixtures.

Inefficient use of space.

More susceptible to shoplifting – salespeople can not view adjacent spaces.

Used in specialty stores and upscale department stores.

Store Layout Advantages

Allowance for browsing & wandering freely

Increased impulse purchase

Visual appealFlexibility

DisadvantagesEncourages loiteringPossible confusionWaste of floor spaceCostDifficulty of cleanliness

Space Planning Space Planning:

The factors considered for effective space planning in a retail store are:

The space allocation, both at the departmental and category level is done keeping in mind the profitability of the department or the category in mind.

Space allocation is an ongoing exercise. The seasonal fluctuations in sales of a category has to be borne in mind while allocating space.

Product shelf life is a factor that decides the quantity that can be stocked in the shelves.

Presentation methods for different items differ. Space allocation has to consider this aspect.

Special sales during a period or after an advertisement campaign may call for an additional space for a category.

Future sales potential of a category is also kept in mind while allocating space.

Space Planning

Types of spaces generally required in stores:Back roomOffice & functional spacesWall merchandising spaceFloor merchandising spaceAisles, service areas & other non selling area of the main sales floor.

Visual Merchandising

Visual merchandising:Visual merchandising or display is the presentation of products in order to sell them

Key aspects: store floor plan, store windows, signs, merchandise display, space design, fixtures and hardware

It goes beyond merely arranging merchandise for easy access to customers.

Process is set in motion with designing the floor plan of the store, placing of mannequins, etc,.

Visual Merchandising

Popular presentation techniques are:Visual merchandising – innovative shelvingCategory wise presentation - logical displayTonnage merchandising – large quantities displayed to give an impression of bargain sale.

Exclusive displays of high return items like watches, jewellary etc.

Impulse purchase – location is important Eg: check out areas, area near cash counters display items like batteries, news papers, chocolates, chips etc.

Live setting presentations like mannequins, furniture setting displays.

Promotion areas attract customers so, often they are kept at the end of departmental stores.

Buying & Merchandising Management -

Subir Guha

Definition of Merchandise Management

“ “Planning and implementation of the acquisition, Planning and implementation of the acquisition, handling and monitoring of merchandise categories for handling and monitoring of merchandise categories for an identified retail organisation.”an identified retail organisation.” The definition highlights that following activities are The definition highlights that following activities are

covered under the ambit of merchandising management :covered under the ambit of merchandising management : Forward planning to cater to the changing consumption Forward planning to cater to the changing consumption

tastes and demand related to the merchandise.tastes and demand related to the merchandise. Effective acquisition of the merchandise from either the Effective acquisition of the merchandise from either the

wholesalers or manufacturers.wholesalers or manufacturers. Appropriate handling of merchandise in order to ensure Appropriate handling of merchandise in order to ensure

that the merchandise can be sold in perfect condition.that the merchandise can be sold in perfect condition. Monitoring all aspects of the process to ensure that the Monitoring all aspects of the process to ensure that the

merchandise is available at the places, times, prices merchandise is available at the places, times, prices and in the quantity that enable the retailer to achieve and in the quantity that enable the retailer to achieve adequate returns from the buying of the merchandise.adequate returns from the buying of the merchandise.

Merchandising philosophy and objective

For a successful retail strategy it is For a successful retail strategy it is essential to have a sound merchandising essential to have a sound merchandising philosophy.philosophy.

The merchandising philosophy must reflect and The merchandising philosophy must reflect and take into consideration:take into consideration: the desires of the target market.the desires of the target market. positioning. positioning. defined value chaindefined value chain Supplier capabilities.Supplier capabilities. costscosts competitorscompetitors product trends.product trends.

Merchandising philosophy and objective

A merchandising philosophy guides all A merchandising philosophy guides all merchandising decisions such as:merchandising decisions such as: The assortment (of categories) across the store The assortment (of categories) across the store

(narrow or wide).(narrow or wide). The brands with in each category. (deep or The brands with in each category. (deep or

shallow)shallow) The sizes/ variables within each brand.The sizes/ variables within each brand. Type of brands – international/ national / local.Type of brands – international/ national / local. pricing policy across each category and pricing policy across each category and

within.within. uniformity or customisation of assortment uniformity or customisation of assortment

within its various stores.within its various stores.

Scope and functions of Scope and functions of merchandisingmerchandising

While forming its merchandising philosophy, the While forming its merchandising philosophy, the retailer must outline the roles of merchandise and retailer must outline the roles of merchandise and in-store personnel That is assign the in-store personnel That is assign the responsibilities and functions of buying and responsibilities and functions of buying and selling.selling.

While doing the above, retailer can take two views While doing the above, retailer can take two views : 1. Merchandising view 2. Buying view.: 1. Merchandising view 2. Buying view. In ‘merchandising view’ its merchandise personnel In ‘merchandising view’ its merchandise personnel

oversee all buying and selling functions, including oversee all buying and selling functions, including assortments, advertising, pricing, point of sales displays, assortments, advertising, pricing, point of sales displays, deployment of personnel, personnel selling approaches. deployment of personnel, personnel selling approaches.

In ‘buying’ view, the merchandise personnel oversee the In ‘buying’ view, the merchandise personnel oversee the buying of products, advertising and pricing, while in-buying of products, advertising and pricing, while in-store personnel oversee assortments, displays, store personnel oversee assortments, displays, personnel deployment and sales presentation. personnel deployment and sales presentation.

Centralised and decentralised Centralised and decentralised buyingbuying

• One of the most important decision a retailer has One of the most important decision a retailer has to take while organising the buying function is to take while organising the buying function is whether it should be centralised or decentralised.whether it should be centralised or decentralised.

• Buying, in most of the organised retail businesses, Buying, in most of the organised retail businesses, is a centralised operation. Buying offices are is a centralised operation. Buying offices are located at or near the company head quarters.located at or near the company head quarters.

• Advantages of Centralised buying are:Advantages of Centralised buying are: Centralised buying offers the advantages of bulk Centralised buying offers the advantages of bulk

buying. Bulk buying gives greater buying power which buying. Bulk buying gives greater buying power which enables the buyer to negotiate better prices and credit enables the buyer to negotiate better prices and credit terms.terms.

Sales data can be aggregated to improve forecasting.Sales data can be aggregated to improve forecasting. Economies of scale are achieved as sourcing and Economies of scale are achieved as sourcing and

selection costs are lower.selection costs are lower.


Quality of manpower is better because it is possible to Quality of manpower is better because it is possible to pay higher to the ‘few’ at the corporate level. pay higher to the ‘few’ at the corporate level. Specialist buyers can devote more time to product Specialist buyers can devote more time to product analysis.analysis.

A better quality level is achieved because it allows A better quality level is achieved because it allows better quality control. For instance by having a team better quality control. For instance by having a team of technologist and quality controllers who work of technologist and quality controllers who work centrally alongside buyers.centrally alongside buyers.

A more consistent assortment is presented in order to A more consistent assortment is presented in order to reinforce the retail brand identity.reinforce the retail brand identity.

Quality of buying and stock control decisions are Quality of buying and stock control decisions are consistent across outlets.consistent across outlets.

Centralised advertisement enables good media Centralised advertisement enables good media bargains.bargains.

Store personnel are freed from buying responsibilities, Store personnel are freed from buying responsibilities, allowing them to concentrate on creating high quality allowing them to concentrate on creating high quality shopping experience for customers in the retail outlet.shopping experience for customers in the retail outlet.


The disadvantages of centralisation are :The disadvantages of centralisation are : The conflicts between stores and head office personnel. The conflicts between stores and head office personnel.

The points of conflict generally are:The points of conflict generally are:‾ store managers have to seek permission from the store managers have to seek permission from the

head office even for making small changes. It is head office even for making small changes. It is perceived as bureaucratic. Slow response to changes perceived as bureaucratic. Slow response to changes poses difficulties in meeting local demand. poses difficulties in meeting local demand.

‾ Initial reaction (of the store personnel) to any new Initial reaction (of the store personnel) to any new style often negative. style often negative.

‾ Buyers complain of insufficient or slow feed back from Buyers complain of insufficient or slow feed back from store personnel – specially related to reasons of slow store personnel – specially related to reasons of slow movement of certain items or newly introduced items.movement of certain items or newly introduced items.

The cost of transportation from centralised warehouse The cost of transportation from centralised warehouse to the individual stores have to be borne extra by the to the individual stores have to be borne extra by the retailer.retailer.

Duties, responsibilities and Duties, responsibilities and qualifications of a buyerqualifications of a buyer

Buying is evidently one of the most important Buying is evidently one of the most important functions in retailing. Because of its importance, functions in retailing. Because of its importance, the responsibility of buying is invariably the the responsibility of buying is invariably the responsibility of the proprietor in a small stores. But responsibility of the proprietor in a small stores. But in a large stores/ retail chain it is done by a in a large stores/ retail chain it is done by a professional team whose members are specially professional team whose members are specially skilled to perform this crucial activity.skilled to perform this crucial activity.

The basic elements of the buying functions are:The basic elements of the buying functions are:What to buy? - is based on assortment decision What to buy? - is based on assortment decision takentaken during the merchandising planning.during the merchandising planning.How much to buy? – is based on inventory management.How much to buy? – is based on inventory management. From whom to buy? – is based on the sourcingFrom whom to buy? – is based on the sourcing decision. decision. When to buy? – timing of the stock , reordering When to buy? – timing of the stock , reordering frequency, perishability/ shelf life.frequency, perishability/ shelf life.


The organisation of the buying department and its The organisation of the buying department and its location depends on the policy, size and type of the location depends on the policy, size and type of the retail operation. For instance, In departmental retail operation. For instance, In departmental stores with branches, the buyers operate from the stores with branches, the buyers operate from the headquarters usually situated in the flagship headquarters usually situated in the flagship stores. But in large retail chains buyers do not stores. But in large retail chains buyers do not operate from main stores but from central operate from main stores but from central headquarters strategically located away from the headquarters strategically located away from the individual stores. individual stores.

The responsibilities and duties of buyers and The responsibilities and duties of buyers and assistant buyers generally are as follows:assistant buyers generally are as follows: Choosing the vendors for each of the items. Deciding the Choosing the vendors for each of the items. Deciding the

quantities to be bought and the timing of the purchase quantities to be bought and the timing of the purchase and delivery of the item. Negotiating the price, shipping and delivery of the item. Negotiating the price, shipping terms and the credit terms. Placement and cancellation terms and the credit terms. Placement and cancellation of orders as and when required.of orders as and when required.

Pricing the items based on the policy . Re-pricing if Pricing the items based on the policy . Re-pricing if required to expedite the sales of slow-moving or non-required to expedite the sales of slow-moving or non-moving items.moving items.


Selecting the items for special display/ advertisement/ Selecting the items for special display/ advertisement/ promotion. This involves planning of fashion show, promotion. This involves planning of fashion show, special events for promotion of specific items. special events for promotion of specific items.

Recruiting and establishing an efficient buying Recruiting and establishing an efficient buying team is very vital for the success of the retail team is very vital for the success of the retail operation. Members of the buying team should operation. Members of the buying team should have following qualifications:have following qualifications: preferably a retail management college degree.preferably a retail management college degree. sound knowledge of the market and sources of thesound knowledge of the market and sources of the itemsitems strong negotiation skillsstrong negotiation skills good knowledge of the productgood knowledge of the product fair knowledge of finance and costing ( understand fair knowledge of finance and costing ( understand

markup, mark down, open to buy etc).markup, mark down, open to buy etc). good analysing and organising skillsgood analysing and organising skills interpersonal skill , leadership qualities.interpersonal skill , leadership qualities. pleasing personality with enthusiastic attitude.pleasing personality with enthusiastic attitude.

Merchandise planningMerchandise planning Devising a sound merchandise planning is Devising a sound merchandise planning is

crucial for success because:crucial for success because: A retail outlet can be of exceptional design, A retail outlet can be of exceptional design,

located most strategically, backed up by the located most strategically, backed up by the shrewdest marketing promotion and shrewdest marketing promotion and manned by the most efficient sales team manned by the most efficient sales team but if it does not have the right items at the but if it does not have the right items at the right time, at the right price, then it is right time, at the right price, then it is heading for a sure failure. heading for a sure failure.

The rapidly changing consumer demand The rapidly changing consumer demand makes merchandise planning activity all the makes merchandise planning activity all the more challenging. more challenging.

It can be a profitable business proposition It can be a profitable business proposition only if it buys the merchandise in a planned only if it buys the merchandise in a planned and efficient manner.and efficient manner.

Merchandise planningMerchandise planning General considerations for a merchandising plan :General considerations for a merchandising plan : 1. Market considerations:1. Market considerations: Store and image, format, environment, fashion trends, customer base etc. 2. Merchandise strategy options:2. Merchandise strategy options: Assortment profiles andAssortment profiles and issues of choice (width and depth), quality, exclusivity, issues of choice (width and depth), quality, exclusivity, seasonality of range, estimated cost, promotions.seasonality of range, estimated cost, promotions. 3. Type of customer base:3. Type of customer base: Items and range purchased, Items and range purchased, average transaction value for different lines, frequency ofaverage transaction value for different lines, frequency of visits and purchases.visits and purchases. 4. Financial considerations:4. Financial considerations: Profitability and sales Profitability and sales performance projections, stock investment/ return, type performance projections, stock investment/ return, type of contract and payment terms, corporate objectives and of contract and payment terms, corporate objectives and pricing.pricing. 5. Merchandise assortment evaluation:5. Merchandise assortment evaluation: Ensuring Ensuring merchandise meets criteria of : required range, cost, pricemerchandise meets criteria of : required range, cost, price range , brand policy, availability, delivery, financial returnsrange , brand policy, availability, delivery, financial returns

..

Merchandise planningMerchandise planningWhile devising the merchandising plan following While devising the merchandising plan following

aspects are to be kept in mind :aspects are to be kept in mind : Forecasting. – needs to be done. Forecasting. – needs to be done. Innovativeness – is essential.Innovativeness – is essential. Assortment – to be determined keeping the needs Assortment – to be determined keeping the needs of the target segment in mindof the target segment in mind Brands - of the products should be aligned to Brands - of the products should be aligned to positioning strategy of the stores positioning strategy of the stores Timing - is important for seasonal productsTiming - is important for seasonal products Allocation – to individual stores to be done Allocation – to individual stores to be done

judiciously. judiciously. Forecasting:Forecasting:

•Forecasting needs to be done at different levels : Forecasting needs to be done at different levels : - overall projections- overall projections - category projections- category projections - item by item projections - item by item projections - store projections.- store projections.

Merchandise planningMerchandise planning• While forecasting, it is necessary to take into account While forecasting, it is necessary to take into account

different types of merchandise. different types of merchandise. The different types The different types of merchandise are:of merchandise are:

- ‘staple merchandise’ consists of regular products - ‘staple merchandise’ consists of regular products carried by the retailer. These provide continuous carried by the retailer. These provide continuous business over an expanded life span. The demand for business over an expanded life span. The demand for these items are fairly stable. Most food products, these items are fairly stable. Most food products, household cleaning items are examples. household cleaning items are examples.

- ‘Assortment merchandise’ consists of products for - ‘Assortment merchandise’ consists of products for which there must be varieties (styles, colours, sizes which there must be varieties (styles, colours, sizes etc). Examples are garments, footwear etc.etc). Examples are garments, footwear etc.

- ‘Fashion merchandise’ consists of items that have - ‘Fashion merchandise’ consists of items that have cyclical sales due to changing tastes and life cycles. cyclical sales due to changing tastes and life cycles.

- ‘Seasonal merchandise’ are items which have seasonal - ‘Seasonal merchandise’ are items which have seasonal demand such as air-conditioners, umbrellas, Woolens demand such as air-conditioners, umbrellas, Woolens etc. etc.

- ‘Fad merchandise’, a high level of sales is generated for - ‘Fad merchandise’, a high level of sales is generated for a short time. Eg;- toys, games etc.a short time. Eg;- toys, games etc.

Merchandise planningMerchandise planning Innovativeness : Innovativeness :

•Innovativeness of merchandise mix refers to the Innovativeness of merchandise mix refers to the extent to which new products/ items are included in extent to which new products/ items are included in the merchandise mix.the merchandise mix.

•The major factors that must be considered while The major factors that must be considered while planning the merchandise-innovativeness are:planning the merchandise-innovativeness are:

- How progressive or conservative the target - How progressive or conservative the target marketmarket

is?is? - While including a new item consider what is the - While including a new item consider what is the growth potential of the item.growth potential of the item. - Whether the new item under consideration is - Whether the new item under consideration is consistent with the retailers image.consistent with the retailers image. - Whether a strategy to lead or follow the - Whether a strategy to lead or follow the

competitioncompetition should be adopted.should be adopted.

Merchandise planningMerchandise planning

- Amount of investment ( additional personnel, - Amount of investment ( additional personnel, specific training requirements, new accessories/ specific training requirements, new accessories/ fixtures) required in introducing the new item.fixtures) required in introducing the new item.

- What is the overall and specific item’s potential - What is the overall and specific item’s potential profit? profit?

- What are the involved risks ( investment cost, What are the involved risks ( investment cost, opportunity costs of not having the item, opportunity costs of not having the item, possibility of damage of image if the item fails)?possibility of damage of image if the item fails)?

• The growth potential of a product can be determined The growth potential of a product can be determined by studying the ‘product life cycle’. PLC has four by studying the ‘product life cycle’. PLC has four stages with different characteristics – 1.Introduction stages with different characteristics – 1.Introduction 2.Growth 3.Maturity 4.Decline.2.Growth 3.Maturity 4.Decline.

• While introducing new products/ items in While introducing new products/ items in merchandise mix decisions regarding dropping/ merchandise mix decisions regarding dropping/ eliminating existing items becomes necessary due to eliminating existing items becomes necessary due to constraint of shelf space and other resources. The constraint of shelf space and other resources. The elimination of items should also be logically and elimination of items should also be logically and rationally done.rationally done.

Merchandise planningMerchandise planning Assortment :Assortment :

•Assortment is the selection of items that the retailer Assortment is the selection of items that the retailer displays in the stores.displays in the stores.

•The important decisions that the retailer has to The important decisions that the retailer has to take regarding assortment are:take regarding assortment are:− Quality of merchandise – by considering the Quality of merchandise – by considering the

needs of the target customers, retailers image, needs of the target customers, retailers image, profitability.profitability.

− Width of the assortment Width of the assortment – – number of categories.number of categories.− Depth of the assortment – the extent of variety in Depth of the assortment – the extent of variety in

each of the category.each of the category.− Mix is complimentary or not.Mix is complimentary or not.− Assortment is traffic generating or not. Assortment is traffic generating or not. − Space, resources investment required by the Space, resources investment required by the

width and depth of the assortment.width and depth of the assortment.

Merchandise planningMerchandise planning• Important criteria for selecting a particular item are:Important criteria for selecting a particular item are: - must match the other items in the assortment. - must match the other items in the assortment. - profitability- profitability - good enough demand.- good enough demand. - speed of movement ( fast/medium/slow - speed of movement ( fast/medium/slow

moving) moving) - must match the stores image.- must match the stores image. - potential to generate traffic.- potential to generate traffic. - popularity of the product/ brand.- popularity of the product/ brand. - profitability of the item.- profitability of the item.• The sources of information regarding item selection The sources of information regarding item selection

are are - competition - competition - customers- customers - vendors- vendors - publications- publications - trade shows- trade shows

Merchandise planningMerchandise planning Brands :Brands :

•During assortment planning the retailer decides on During assortment planning the retailer decides on the brand mix. the brand mix.

• There are essentially three types of brands:There are essentially three types of brands:1. Manufacturer brands – national/ international 1. Manufacturer brands – national/ international

brands manufactured by large manufacturers.brands manufactured by large manufacturers. 2. Private brands – these are also known as store 2. Private brands – these are also known as store

brands. These are the brands owned by the retailer. brands. These are the brands owned by the retailer. These are not sold by retailer’s competitors. Less These are not sold by retailer’s competitors. Less expensive for consumers. More profitable to the expensive for consumers. More profitable to the retailer. Retailer organises the manufacturing of retailer. Retailer organises the manufacturing of these items and solely markets the brand. these items and solely markets the brand.

3. Generic brands – These are a form of private 3. Generic brands – These are a form of private brands but do not have specific brand-name. These brands but do not have specific brand-name. These carry product’s generic names like Mango juice, carry product’s generic names like Mango juice, packaged peanuts etc. No promotions are done for packaged peanuts etc. No promotions are done for thesethese

Merchandise planningMerchandise planningTiming:Timing:

A merchandiser must determine when each item is A merchandiser must determine when each item is to be stocked. For new goods he has to decide as to be stocked. For new goods he has to decide as to when they should be first displayed and sold. to when they should be first displayed and sold. For established goods he has to plan the For established goods he has to plan the merchandise flow during the year. Stock turnover merchandise flow during the year. Stock turnover greatly influences the frequency of ordering.greatly influences the frequency of ordering.

Allocation:Allocation: A single unit retailer has to decide how much of A single unit retailer has to decide how much of

merchandise is to be placed on the floor, how merchandise is to be placed on the floor, how much is to be kept in stock-room and whether to much is to be kept in stock-room and whether to use a ware house. A retail chain has to also decide use a ware house. A retail chain has to also decide on allocating items among the retail stores/ outlets on allocating items among the retail stores/ outlets it has.it has.

Execution of Merchandising plan - Execution of Merchandising plan - SourcingSourcing

Deciding on the Deciding on the type of vendortype of vendor to be selected for to be selected for a merchandise is a very important decision in a merchandise is a very important decision in buying.buying.

The major types of vendors are :The major types of vendors are :ManufacturersManufacturersWholesalers/ distributors.Wholesalers/ distributors.AgentsAgents

Manufactures produce the item/ items in one or Manufactures produce the item/ items in one or more production units, which can be spread on a more production units, which can be spread on a national or international basis. They usually have a national or international basis. They usually have a sales office or a showroom, either attached to a sales office or a showroom, either attached to a production unit or in a convenient location. Large production unit or in a convenient location. Large retailers who can buy an item in bulk frequently retailers who can buy an item in bulk frequently deal directly with a product manufacturer.deal directly with a product manufacturer.


Wholesalers buy in bulk from the manufactures and sell to Wholesalers buy in bulk from the manufactures and sell to the retailers from their stock. They apply a profit margin to the retailers from their stock. They apply a profit margin to the products they sell to the retailers. They provide credit, the products they sell to the retailers. They provide credit, transportation, information, variety etc to the retailer.transportation, information, variety etc to the retailer.

Agents do not buy or take ownership of the products that Agents do not buy or take ownership of the products that they sell. They collect orders from number of small retailers they sell. They collect orders from number of small retailers and make it possible for the manufactures to produce the and make it possible for the manufactures to produce the item in bulk. They normally work on commission basis.item in bulk. They normally work on commission basis.

Wholesalers and distributors are middlemen who Wholesalers and distributors are middlemen who help the manufacturers in distributing their products. help the manufacturers in distributing their products. Small retailers do not have a choice but to source Small retailers do not have a choice but to source their merchandise from the wholesalers/ distributors their merchandise from the wholesalers/ distributors because manufacturers do not cater to small because manufacturers do not cater to small quantities of requirement. But the large retailers quantities of requirement. But the large retailers have the choice of sourcing their merchandise from have the choice of sourcing their merchandise from distributors or directly from the manufacturer.distributors or directly from the manufacturer.


The direct purchase from manufacturers gives The direct purchase from manufacturers gives the buyer the advantage of lower prices and the buyer the advantage of lower prices and also the chance of interacting with the also the chance of interacting with the manufacturers to make changes in the design.manufacturers to make changes in the design.

But certain factors compel the buyers to But certain factors compel the buyers to purchase from the intermediaries/ middlemen:purchase from the intermediaries/ middlemen:

Quick delivery – the main duty a wholesaler Quick delivery – the main duty a wholesaler performs in the value chain is the storage of performs in the value chain is the storage of merchandise. From the wholesaler’s warehouse the merchandise. From the wholesaler’s warehouse the buyer can expect prompt delivery.buyer can expect prompt delivery.

Smaller orders .Smaller orders . Wide assortment – while manufacturers sell only Wide assortment – while manufacturers sell only

their own products, the wholesaler carries the their own products, the wholesaler carries the offering of many manufacturers. This provides the offering of many manufacturers. This provides the retailer the opportunity to compare goods and retailer the opportunity to compare goods and save time.save time.

Easier credit term – usually, buyers get liberal Easier credit term – usually, buyers get liberal credit terms from wholesalers.credit terms from wholesalers.


The parameters, based on which the retailer The parameters, based on which the retailer must take the decision of buying from a must take the decision of buying from a wholesaler/ distributor or directly from the wholesaler/ distributor or directly from the manufacturer, are:manufacturer, are:

• Prices – purchasing it directly from the manufacturer Prices – purchasing it directly from the manufacturer saves the distributor's cut or the margin kept by the saves the distributor's cut or the margin kept by the wholesaler which ranges from 5% to 15%.wholesaler which ranges from 5% to 15%.

• Space requirement – manufacturers like to send Space requirement – manufacturers like to send consignments in bulk. This might require a large consignments in bulk. This might require a large inventory space. Because a retailer deals with a inventory space. Because a retailer deals with a large number of items the cost the cost of space can large number of items the cost the cost of space can be high if he were to deal only with manufacturers. be high if he were to deal only with manufacturers.

• Credit terms – manufacturers may not offer credit Credit terms – manufacturers may not offer credit terms but distributors do. But if a retailer is really terms but distributors do. But if a retailer is really large , manufacturers also offer credit terms.large , manufacturers also offer credit terms.


• Promotions & advertisements - if a retailer Promotions & advertisements - if a retailer purchases items directly from the manufacturer the purchases items directly from the manufacturer the requirement of promotion schemes can be directly requirement of promotion schemes can be directly taken up with the marketing personnel of the taken up with the marketing personnel of the manufacturer. By this he has greater opportunity to manufacturer. By this he has greater opportunity to organise exclusive schemes for his retail outfit.organise exclusive schemes for his retail outfit.

Selection of specific vendor for each item is done Selection of specific vendor for each item is done after deciding the type of vendor. The factors after deciding the type of vendor. The factors considered for selecting a new vendor are:considered for selecting a new vendor are:

• Quality of merchandise.Quality of merchandise.• Price and terms of supply of the merchandise.Price and terms of supply of the merchandise.• Vendor’s reputation and capacity.Vendor’s reputation and capacity.• Location of the vendor.Location of the vendor.• Record of timeliness and consistency of supplies.Record of timeliness and consistency of supplies.• Authorised source or not.Authorised source or not.• Response to emergencies.Response to emergencies.

Execution of Merchandising plan - Sourcing

Vendor negotiation is the next step:Vendor negotiation is the next step: This detailed negotiation needs knowledge and This detailed negotiation needs knowledge and

skill on the part of the buyer. A mutually skill on the part of the buyer. A mutually beneficial long term relationship should be beneficial long term relationship should be aimed at. This requires the building of mutual aimed at. This requires the building of mutual trust.trust.

Following are the important issues related with Following are the important issues related with negotiation with vendors:negotiation with vendors:

• Prices.Prices.• Quantity discounts.Quantity discounts.• Credit terms.Credit terms.• Timely delivery –late delivery clauses.Timely delivery –late delivery clauses.• Transport cost – who should bear it ?Transport cost – who should bear it ?• Transit insurance cost will be borne by whom?Transit insurance cost will be borne by whom?• Exclusivity clause and or sharing of advertising Exclusivity clause and or sharing of advertising

costs.costs.• Issues related to rejections and complaints.Issues related to rejections and complaints.


Vendor evaluation and monitoring:Vendor evaluation and monitoring: Vendors/suppliers to organised retailers are Vendors/suppliers to organised retailers are

subjected to regular evaluation or continual subjected to regular evaluation or continual monitoring to ensure that their standards do not fall.monitoring to ensure that their standards do not fall.

The buying department may carry out this analysis or The buying department may carry out this analysis or it may be the task of a separate department.it may be the task of a separate department.

The most common method of supplier evaluation is The most common method of supplier evaluation is the weighted multiple attribute evaluation system. the weighted multiple attribute evaluation system. The performance is expressed in terms of quality The performance is expressed in terms of quality rating, delivery rating, price rating & service rating. rating, delivery rating, price rating & service rating. These are summed up to obtain the supplier’s These are summed up to obtain the supplier’s composite rating.composite rating.

If the rating of a vendor starts to fall in a significant If the rating of a vendor starts to fall in a significant way, remedial or corrective steps are taken by the way, remedial or corrective steps are taken by the vendor. Otherwise penalties are incurred.vendor. Otherwise penalties are incurred.


Placement of orders:Placement of orders: Placement of orders is based on the buying system. Placement of orders is based on the buying system.

There are two basic types of buying systems followed in There are two basic types of buying systems followed in retailing : 1.SKU–based system.2.Open-to-buy system.retailing : 1.SKU–based system.2.Open-to-buy system.

SKU based system is used for ‘Staple merchandise’. The SKU based system is used for ‘Staple merchandise’. The actual sales of each SKU in every store is very carefully actual sales of each SKU in every store is very carefully tracked so that a forecast can be made. This enables a tracked so that a forecast can be made. This enables a computer based cycle of order-receipt-order system to computer based cycle of order-receipt-order system to be followed for buying.be followed for buying.

Open-to-buy system is used for buying ‘Fashion Open-to-buy system is used for buying ‘Fashion merchandise’. The demand for Fashion merchandise is merchandise’. The demand for Fashion merchandise is dependent seasonal and environmental changes. The dependent seasonal and environmental changes. The system does not provide the information as to how system does not provide the information as to how much of a specific item is to be bought but indicates the much of a specific item is to be bought but indicates the amount that should be invested on a category. amount that should be invested on a category. Inventory turnover and GMROI (Gross margin return on Inventory turnover and GMROI (Gross margin return on investment) form the basis of merchandising budget investment) form the basis of merchandising budget plan. plan.


Purchase order is placed on the vendor giving all the Purchase order is placed on the vendor giving all the details pertaining to the execution of the order. There details pertaining to the execution of the order. There should be no ambiguity regarding:should be no ambiguity regarding:

• Vendor name and addressVendor name and address• Description/ specification of the item,Description/ specification of the item,• Price and related terms of payment.Price and related terms of payment.• Quantity to be supplied,Quantity to be supplied,• Delivery schedule.Delivery schedule.• Inspection details,Inspection details,• Point of delivery (where the title/ ownership of the Point of delivery (where the title/ ownership of the goods will be transferred).goods will be transferred).

• Mode of transport.Mode of transport.• Packaging details marking details.Packaging details marking details.

The purchase order (contract) specifies the terms and The purchase order (contract) specifies the terms and conditions applicable in the event of rejections/ conditions applicable in the event of rejections/ damage.damage.

After the delivery is made as per the purchase order, After the delivery is made as per the purchase order, the goods are inspected and received by the respective the goods are inspected and received by the respective teams at the specified point.teams at the specified point.

Execution of Merchandising plan - Execution of Merchandising plan - SourcingSourcing Transportation:Transportation:

Transportation of merchandise in time and safe/ Transportation of merchandise in time and safe/ secure condition is of utmost importance.secure condition is of utmost importance.

The effectiveness of transportation depends upon the The effectiveness of transportation depends upon the availability/ quality of logistics infrastructure availability/ quality of logistics infrastructure consisting of roadways, waterways,railways, airways, consisting of roadways, waterways,railways, airways, refrigerated trucks, container facilities etc. refrigerated trucks, container facilities etc.

Important points related to transportation decisions:Important points related to transportation decisions:• Frequency of shipment.Frequency of shipment.•Handling of small quantity and emergency orders.Handling of small quantity and emergency orders.•Mode of transport – time, cost, availability, Mode of transport – time, cost, availability, reliability.reliability.

•Special considerations for perishable and Special considerations for perishable and expensive merchandise.expensive merchandise.

•Who will bear the transportation cost?Who will bear the transportation cost?•Where should it be delivered? – Warehouse/ Where should it be delivered? – Warehouse/ distribution centres or direct to stores.distribution centres or direct to stores.


Receiving/ stocking operationsReceiving/ stocking operations The receiving operation involves inspection, recording, The receiving operation involves inspection, recording,

checking and marking of merchandise.checking and marking of merchandise. Inspection of merchandise ought to be done Inspection of merchandise ought to be done

immediately after unloading from the truck. The immediately after unloading from the truck. The quantity, physical condition of the cartons/items should quantity, physical condition of the cartons/items should be inspected. Any discrepancy found should be noted be inspected. Any discrepancy found should be noted in the deliverer’s and stores copy of the receipt/ freight in the deliverer’s and stores copy of the receipt/ freight bill so that damage claims can be undertaken.bill so that damage claims can be undertaken.

Recording the details of the receipt of the merchandise Recording the details of the receipt of the merchandise in the prescribed form is next done. in the prescribed form is next done.

Checking the item in terms of quantity and quality is Checking the item in terms of quantity and quality is done after unpacking, as a next step. This is generally done after unpacking, as a next step. This is generally done after invoice arrives.done after invoice arrives.

Marking decisions (whether to mark, where/ what to Marking decisions (whether to mark, where/ what to mark etc.) are taken depending on the nature of the mark etc.) are taken depending on the nature of the merchandise. Tags can be put manually or by merchandise. Tags can be put manually or by machines.machines.

Retailer-supplier relationship Retailer-supplier relationship developmentdevelopment

While dealing with its suppliers, a retailer can While dealing with its suppliers, a retailer can adopt two types approaches : adopt two types approaches :

1. Transactional approach 1. Transactional approach 2. Partnership approach.2. Partnership approach.

The characteristics of ‘Transactional approach’ The characteristics of ‘Transactional approach’ are:are:

• Short term or one off.Short term or one off.• Many suppliers.Many suppliers.• Disloyalty and lack of commitment.Disloyalty and lack of commitment.• Low switching costs, a little or no investment made in Low switching costs, a little or no investment made in

relationships.relationships.• Loose or no procedures.Loose or no procedures.• Exchange centered on single person in firmExchange centered on single person in firm• Changes in customer/supplier make little difference.Changes in customer/supplier make little difference.


The characteristics of a ‘partnership approach’ The characteristics of a ‘partnership approach’ are:are:

• Long term and ongoing .Long term and ongoing .• Few suppliers.Few suppliers.• Loyalty and commitment.Loyalty and commitment.• High switching costs, significant investments are made High switching costs, significant investments are made

on the partnership.on the partnership.• Strict procedural guidelines.Strict procedural guidelines.• Many people and departments involved in exchanges.Many people and departments involved in exchanges.• Change in customer/supplier causes disruption.Change in customer/supplier causes disruption.

In the recent years there has been an increasing In the recent years there has been an increasing awareness of the benefits of a long- term oriented awareness of the benefits of a long- term oriented relationship between a retailer and its vendors. So relationship between a retailer and its vendors. So more and more retailers are adopting ‘Partnership more and more retailers are adopting ‘Partnership approach’ towards their suppliers.approach’ towards their suppliers.


To achieve competitive advantage it is essential To achieve competitive advantage it is essential to focus on alliances, networks and supply to focus on alliances, networks and supply chain management (SCM). The supply chain chain management (SCM). The supply chain consists of all the parties that participate in the consists of all the parties that participate in the retail logistics process. retail logistics process.

In an attempt to have a closer logistical In an attempt to have a closer logistical relationship with the suppliers, the retailers are relationship with the suppliers, the retailers are adopting a technique known as CPFR adopting a technique known as CPFR (collaborative planning, forecasting and (collaborative planning, forecasting and replenishment). CPFR promotes a holistic replenishment). CPFR promotes a holistic approach to SCM among trading partners.approach to SCM among trading partners.


The interaction model of retail buying :The interaction model of retail buying :


ECR ( Efficient consumer response) approach is :ECR ( Efficient consumer response) approach is : “Working together to fulfill consumer wishes better, “Working together to fulfill consumer wishes better, faster and at less cost"faster and at less cost"

Two fundamental principles of the approach:Focus on consumers: Commitment by all members in Focus on consumers: Commitment by all members in

the supply chain to the act of providing consumers with the supply chain to the act of providing consumers with products and services that consistently meet or surpass products and services that consistently meet or surpass their demands and expectations their demands and expectations

Working together :Organizations work together, work Working together :Organizations work together, work internally and with their trading partners, to overcome internally and with their trading partners, to overcome barriers that erode efficiency and effectiveness. barriers that erode efficiency and effectiveness.

It allows consumer demand to control all supply It allows consumer demand to control all supply chain activities - trading partners team up to chain activities - trading partners team up to maximize customer satisfaction & minimize total maximize customer satisfaction & minimize total cost.cost.


Factors that improve vendor–retailer Factors that improve vendor–retailer relationship:relationship:Detailed feedback on sales from the retailer to the Detailed feedback on sales from the retailer to the

supplier.supplier.Co-operation and Co-ordination in marketing Co-operation and Co-ordination in marketing

activities.activities.Sharing of information on relevant consumer trends Sharing of information on relevant consumer trends

and product/market trends and innovations.and product/market trends and innovations.Systems integration to facilitate information sharing Systems integration to facilitate information sharing

,includes sales data stock and delivery information,includes sales data stock and delivery informationAn understanding of the retailer’s target customer An understanding of the retailer’s target customer

and the brand image, that the retailer is trying to and the brand image, that the retailer is trying to build, by the supplier.build, by the supplier.

Complete understanding by the supplier, of the Complete understanding by the supplier, of the retailer’s quality standards requirements both in retailer’s quality standards requirements both in terms of product quality and compliance on delivery terms of product quality and compliance on delivery and administrationand administration

Inventory managementInventory management Inventory/ stock management of Staple Inventory/ stock management of Staple

merchandise:merchandise:Staple merchandise such as bread, milk, shampoo, light Staple merchandise such as bread, milk, shampoo, light

bulbs etc need to be replaced at regular intervals by bulbs etc need to be replaced at regular intervals by the retailer. Over time the expected sales of this type the retailer. Over time the expected sales of this type of items become very predictable and could be of items become very predictable and could be determined by knowing the average per capita determined by knowing the average per capita consumption and number of customers who visit the consumption and number of customers who visit the retailing outlet.retailing outlet.

There are basically two systems followed – 1. ‘periodic There are basically two systems followed – 1. ‘periodic review’ 2. ‘fixed order quantity’ systems.review’ 2. ‘fixed order quantity’ systems.

In Periodic review (P) system the stock position is In Periodic review (P) system the stock position is reviewed periodically rather than continuously. A new reviewed periodically rather than continuously. A new order is always placed at the end of each review and order is always placed at the end of each review and the time between order is fixed. The quantity that is the time between order is fixed. The quantity that is required to replenish the stock back to a fixed required to replenish the stock back to a fixed predetermined level, is the order quantity for the predetermined level, is the order quantity for the review point. Demand between two orders varies so the review point. Demand between two orders varies so the order quantity varies. So in this system the order order quantity varies. So in this system the order quantity varies but the time between orders remains quantity varies but the time between orders remains fixed. fixed.

4. Inventory – in supply chain 4. Inventory – in supply chain structurestructure

Inventory managementInventory managementIn Fixed order quantity system the stock of an item In Fixed order quantity system the stock of an item is continuously reviewed. A reorder level is decided is continuously reviewed. A reorder level is decided on. Whenever the stock of the item equals the reorder on. Whenever the stock of the item equals the reorder level, a new order is placed. The time between orders level, a new order is placed. The time between orders can vary. In this system, the order quantity ordered is can vary. In this system, the order quantity ordered is always fixed (always fixed (i.e.i.e. same) and is equal to the EOQ. EOQ same) and is equal to the EOQ. EOQ (Economic Order Quantity) is calculated by a formula (Economic Order Quantity) is calculated by a formula which ensures that the total cost is minimum. (Refer which ensures that the total cost is minimum. (Refer to the class discussions for details).to the class discussions for details).

Inventory managementInventory management

Lead time is the lapsed time between the placement Lead time is the lapsed time between the placement of an order and its actual delivery.of an order and its actual delivery.

Safety stock level is also known as buffer stock. It is Safety stock level is also known as buffer stock. It is the extra quantity of merchandise that is stocked to the extra quantity of merchandise that is stocked to take care of delay in delivery and higher demand take care of delay in delivery and higher demand during the lead time.during the lead time.

Inventory managementInventory management ECR & QR approaches:ECR & QR approaches:

The ECR (Efficient Consumer Response) approach has The ECR (Efficient Consumer Response) approach has been detailed earlier while discussing the importance been detailed earlier while discussing the importance of building collaborative relationship with of building collaborative relationship with vendors/suppliers.vendors/suppliers.

The QR (Quick Response) approach is adopted by the The QR (Quick Response) approach is adopted by the retailer to reduce the QOH (quantity on hand) by retailer to reduce the QOH (quantity on hand) by ordering more frequently.The order size in this ordering more frequently.The order size in this approach is substantially reduced.approach is substantially reduced.Some of the essential features of QR approach are:Some of the essential features of QR approach are:

• Excellent relationship with the vendors and very Excellent relationship with the vendors and very close monitoring of inventory levels to avoid stock-close monitoring of inventory levels to avoid stock-outs.outs.

• Effective co-ordination with vendors regarding Effective co-ordination with vendors regarding shipments.shipments.

• Share data with the vendors to improve inventory Share data with the vendors to improve inventory turnover.turnover.

Inventory managementInventory management• EDI (electronic data interchange) with the vendor EDI (electronic data interchange) with the vendor

helps the QR inventory planning.helps the QR inventory planning.• ‘‘Floor ready merchandise’ is used in conjunction Floor ready merchandise’ is used in conjunction

with QR, so that the merchandise can be directly put with QR, so that the merchandise can be directly put on shelf without preparatory work. Suppliers on shelf without preparatory work. Suppliers perform functions that might otherwise take place in perform functions that might otherwise take place in retailer’s distribution centres. Pre-retailing activities retailer’s distribution centres. Pre-retailing activities like labelling/ ticketing is done at the vendor’s like labelling/ ticketing is done at the vendor’s end .end .

Both ECR and QR approaches to stock control are Both ECR and QR approaches to stock control are aimed to cut all stock holding by the retailers to bare aimed to cut all stock holding by the retailers to bare minimum. But essentially ECR approach is adopted for minimum. But essentially ECR approach is adopted for food and fast moving items which have relatively food and fast moving items which have relatively stable demand patterns and higher volumes, while QR stable demand patterns and higher volumes, while QR approach is adopted for higher value and lower volume approach is adopted for higher value and lower volume products (clothing and home furnishings as examples). products (clothing and home furnishings as examples). QR involve supply techniques that allow retailers to QR involve supply techniques that allow retailers to respond more effectively to fashion and seasonal sales respond more effectively to fashion and seasonal sales variations.variations.

Inventory managementInventory management VMI (vendor managed inventory):VMI (vendor managed inventory):

In this system,a retailer passes the responsibility for In this system,a retailer passes the responsibility for managing stock levels with in the stores to the managing stock levels with in the stores to the supplier. The retailer provides the information that supplier. The retailer provides the information that allows the supplier to schedule its production and allows the supplier to schedule its production and finished stock level so that automatic replenishment finished stock level so that automatic replenishment system is guaranteed.system is guaranteed.

In certain cases (such as batteries or spices) the In certain cases (such as batteries or spices) the vendor takes on the responsibility to provide shelf vendor takes on the responsibility to provide shelf stacking service as well.The supplier’s employee stacking service as well.The supplier’s employee keeps track of the shelf stock and replenishes the keeps track of the shelf stock and replenishes the same during his visits.same during his visits.

VMI is similar to QR but here the supplier has more VMI is similar to QR but here the supplier has more control over range development.control over range development.

Obviously VMI can not operate without a true Obviously VMI can not operate without a true partnership between the retailer and the vendor. It partnership between the retailer and the vendor. It takes the role of category captain one step further.takes the role of category captain one step further.

Inventory managementInventory management Inventory valuation methods in retailingInventory valuation methods in retailing

‘‘Cost method’ and ‘retail method’ are two different Cost method’ and ‘retail method’ are two different kinds of accounting systems a retailer can follow. kinds of accounting systems a retailer can follow. Depending on the type of items a retailer can follow Depending on the type of items a retailer can follow either of the two accounting systems.either of the two accounting systems.

In cost method the valuation of merchandise is done In cost method the valuation of merchandise is done by adding cost and transportation charges. A retailer by adding cost and transportation charges. A retailer can carry out cost method by physical inventory can carry out cost method by physical inventory system or perpetual inventory system.system or perpetual inventory system.

• Physical inventory involves counting each item in Physical inventory involves counting each item in stock. Physical inventory is carried out stock. Physical inventory is carried out periodically ( once or twice in a year). (Cost is periodically ( once or twice in a year). (Cost is coded on the tag). At the end of this exercise the coded on the tag). At the end of this exercise the inventory value of each item is determined. A inventory value of each item is determined. A retailer following cost method by physical inventory retailer following cost method by physical inventory system can derive gross profit only after a physical system can derive gross profit only after a physical inventory is taken. This imposes limitation on inventory is taken. This imposes limitation on planning process because physical inventory is planning process because physical inventory is taken only once or twice a year. Another limitation taken only once or twice a year. Another limitation of this system is that the inventory losses during of this system is that the inventory losses during the period is not computed.the period is not computed.

Inventory managementInventory management• Perpetual inventory system (also known as book Perpetual inventory system (also known as book

inventory system) is based on the record keeping inventory system) is based on the record keeping entries. In this the purchases are regularly added to entries. In this the purchases are regularly added to the existing inventory and the sales subtracted in the existing inventory and the sales subtracted in each transaction to determine the new current each transaction to determine the new current inventory. As the current stock is updated inventory. As the current stock is updated continuously the problem of infrequent financial continuously the problem of infrequent financial analysis is not there in this system. This system also analysis is not there in this system. This system also allows to compare the actual inventory with the allows to compare the actual inventory with the book inventory at any point of time.book inventory at any point of time.

To take care of changes in cost of the merchandise To take care of changes in cost of the merchandise either FIFO or LIFO method can be adopted. FIFO either FIFO or LIFO method can be adopted. FIFO assumes old merchandise is sold first, hence the assumes old merchandise is sold first, hence the item is assumed to be sold based on old cost item is assumed to be sold based on old cost structure . LIFO assumes that new merchandise is structure . LIFO assumes that new merchandise is sold first, hence the current sale is made based on sold first, hence the current sale is made based on current cost structure.current cost structure.

Cost based method obviously is not suitable for Cost based method obviously is not suitable for merchandise with rapid changes in cost structure. merchandise with rapid changes in cost structure.

Retail Marketing & Promotions of Merchandise

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Retail Marketing & Promotions of Merchandise

All the activities done by a retailer should All the activities done by a retailer should ultimately culminate in selling its wares and result ultimately culminate in selling its wares and result in profits for the store. Hence a sound marketing in profits for the store. Hence a sound marketing strategy is most essential for the retailer.strategy is most essential for the retailer.

It is essential to create an unique experience for It is essential to create an unique experience for the customer, so that he patronizes the retail the customer, so that he patronizes the retail shop/chain as a loyal customer.shop/chain as a loyal customer.

Price plays one of the most important role in Price plays one of the most important role in today’s competitive market. Customers are today’s competitive market. Customers are looking for greater value for their money than looking for greater value for their money than ever before. Retailers have to make profit in ever before. Retailers have to make profit in fiercely competitive environment through right fiercely competitive environment through right pricing strategy.pricing strategy.

Retail Pricing StrategyRetail Pricing Strategy The two opposing pricing strategies that prevail The two opposing pricing strategies that prevail

in the retail industry are:in the retail industry are: Everyday Low price (EDLP) strategyEveryday Low price (EDLP) strategy High / Low pricing strategy.High / Low pricing strategy.

EDLP Pricing strategy:EDLP Pricing strategy: EDLP strategy implies that the prices are EDLP strategy implies that the prices are

kept somewhat lower than the other kept somewhat lower than the other retailers. By adopting this strategy of retailers. By adopting this strategy of deliberately keeping the prices consistently deliberately keeping the prices consistently lower than the other retailers who might be lower than the other retailers who might be offering only occasional discounts the offering only occasional discounts the retailer tries to establish a goodwill and retailer tries to establish a goodwill and reputation of offering a stable low price. reputation of offering a stable low price. The name should have rather been The name should have rather been ‘Everyday stable prices strategy’.‘Everyday stable prices strategy’.

Retail Pricing StrategyRetail Pricing Strategy EDLP strategy is adopted by many successful EDLP strategy is adopted by many successful

retail chains like Wall-Mart, Kmart, Target, Tesco retail chains like Wall-Mart, Kmart, Target, Tesco etc. It is considered to be far more successful etc. It is considered to be far more successful strategy than High-Low pricing strategy in retail strategy than High-Low pricing strategy in retail business.business.

Benefits of EDLP strategy are-Benefits of EDLP strategy are-• Customer’s faith in the stores keeps building Customer’s faith in the stores keeps building

up ensuring customer loyalty.up ensuring customer loyalty.• Lower adverting expenditures.Lower adverting expenditures.• Inventory management is better because it Inventory management is better because it

reduces high variation in demand.reduces high variation in demand.• Frequent sales promotions cause high Frequent sales promotions cause high

variations in demand – this is avoided in EDLP variations in demand – this is avoided in EDLP strategy.strategy.

• Lesser mistakes related to prices occur Lesser mistakes related to prices occur because of lesser price changes.because of lesser price changes.

Retail Pricing StrategyRetail Pricing Strategy High / Low pricing strategy:High / Low pricing strategy:

The retailers who adopt this strategy sell most The retailers who adopt this strategy sell most of their merchandise at normal price keeping a of their merchandise at normal price keeping a good margin but consistently have sales good margin but consistently have sales promotion of select items. By having such promotion of select items. By having such sales promotions on a regular basis they sales promotions on a regular basis they attempt to create excitement for the attempt to create excitement for the customers to visit their stores.customers to visit their stores.

Many retailers in India and around the world Many retailers in India and around the world adopt this pricing strategy and have had fair adopt this pricing strategy and have had fair success in retail business.success in retail business.

Many in the niche market are able to maintain Many in the niche market are able to maintain high prices consistently. Many fashion high prices consistently. Many fashion designers adopt this pricing policy of selling designers adopt this pricing policy of selling high quality of products without compromising high quality of products without compromising on prices.on prices.

Retail Pricing StrategyRetail Pricing Strategy Benefits of high/Low pricing strategy are :Benefits of high/Low pricing strategy are :

• They can address different segments of They can address different segments of clients. For instance when a new fashion clients. For instance when a new fashion item is launched it is priced high for high item is launched it is priced high for high income group clients. When the hype is income group clients. When the hype is over it is sold at discount prices for over it is sold at discount prices for another segment. Lot of excitement is another segment. Lot of excitement is created during such discount sale, created during such discount sale, creating a festive atmosphere.creating a festive atmosphere.

• Slow moving items can be pushed by Slow moving items can be pushed by offers with out making it obvious amidst offers with out making it obvious amidst the other promotion offers that are the other promotion offers that are continuously underway.continuously underway.

• EDLP is hard to maintain. It is hard to sell EDLP is hard to maintain. It is hard to sell merchandise at low price continuously.merchandise at low price continuously.

Methods of Product Pricing Methods of Product Pricing Fundamental methods of retail pricing are:Fundamental methods of retail pricing are:

Cost oriented method wherein the retail price Cost oriented method wherein the retail price is determined by adding a fixed percentage to is determined by adding a fixed percentage to the cost of merchandise. In this the retailer the cost of merchandise. In this the retailer attempts to get the best deal from its attempts to get the best deal from its suppliers and then decides how much suppliers and then decides how much ‘markup’ he should keep to arrive at a ‘markup’ he should keep to arrive at a reasonable retail price.reasonable retail price.

Demand oriented method implies that the Demand oriented method implies that the objective is to determine the correct balance objective is to determine the correct balance of margin and sales so that the profit can be of margin and sales so that the profit can be maximised. This is popular for pricing non – maximised. This is popular for pricing non – branded product. ‘Mark – down’ which is branded product. ‘Mark – down’ which is discounted over initial price is often adopted discounted over initial price is often adopted to maximise profits by clearing the stock or to maximise profits by clearing the stock or selling more.selling more.

Methods of Product PricingMethods of Product Pricing In India however the retail price is usually pre – In India however the retail price is usually pre –

determined by the manufacturer because the determined by the manufacturer because the MRP (maximum retail price) needs to be printed MRP (maximum retail price) needs to be printed for all branded products by law. So that the only for all branded products by law. So that the only option left to the retailer is to decide how much option left to the retailer is to decide how much lower than the MRP he should sell.lower than the MRP he should sell.

The ‘Private label segment’, consisting of store The ‘Private label segment’, consisting of store brands, is slowly growing in India. In this brands, is slowly growing in India. In this segment the retailer being the manufacturer has segment the retailer being the manufacturer has the liberty of fixing the price of the product the liberty of fixing the price of the product independently. Private label segment is independently. Private label segment is generally cheaper than the branded segment. In generally cheaper than the branded segment. In the past the private brands were considered the past the private brands were considered mid-tier products. In the US the perception is mid-tier products. In the US the perception is changing because many retailers are introducing changing because many retailers are introducing premium private brands. premium private brands.

Methods of Product PricingMethods of Product Pricing The special or additional pricing practices adopted The special or additional pricing practices adopted

by the retailers are:by the retailers are: Leader pricing – to attract customers certain Leader pricing – to attract customers certain

items are priced lower than normal to attract items are priced lower than normal to attract customer flow. It has been seen that customers customer flow. It has been seen that customers who come to buy these ‘loss leaders’ end up who come to buy these ‘loss leaders’ end up buying other items in the stores also thereby buying other items in the stores also thereby increasing the total sale of the stores. Items of increasing the total sale of the stores. Items of daily use such as bread, milk, egg etc often daily use such as bread, milk, egg etc often made ‘loss leaders’ in super markets.made ‘loss leaders’ in super markets.

Odd pricing /psychological pricing – Marketers Odd pricing /psychological pricing – Marketers often resort to this type of pricing in order to often resort to this type of pricing in order to overcome psychological barriers to pricing. overcome psychological barriers to pricing.

Methods of Product PricingMethods of Product Pricing To remain within a price brand the firm sets

the price of the product at an odd figure like Rs.98/- instead of Rs.100/-.

Price bundling – in this two or more items are Price bundling – in this two or more items are sold for the price of one. A toothbrush is often sold for the price of one. A toothbrush is often sold with a tooth paste for example. Often a sold with a tooth paste for example. Often a less desirable merchandise is bundled with a less desirable merchandise is bundled with a high demand merchandise.high demand merchandise.

Multiple unit pricing – this is bundling of two Multiple unit pricing – this is bundling of two or more units of the same product. When or more units of the same product. When independently sold the unit price of the independently sold the unit price of the product is more than when it is sold as a part product is more than when it is sold as a part of a bundle. Eg:- Maggi noodle of bundled of a bundle. Eg:- Maggi noodle of bundled packages.packages.

Sales PromotionSales Promotion Sales promotion activities are typically conducted Sales promotion activities are typically conducted

to influence customers’ buying behaviour during to influence customers’ buying behaviour during a specific and short period of time.a specific and short period of time.

Retailers generally organise sales promotions to:Retailers generally organise sales promotions to: attract new customersattract new customers introduce a new item or whole new product introduce a new item or whole new product

lineline dispose off excess stock after the end of a dispose off excess stock after the end of a

season.season. To counter the promotions of competitors.To counter the promotions of competitors. To address a niche market which does not To address a niche market which does not

justify full fledged advertisingjustify full fledged advertising To create excitement leading to greater To create excitement leading to greater

popularity of the retail storepopularity of the retail store

Sales PromotionSales Promotion The factors that are considered while deciding on The factors that are considered while deciding on

sales promotion are :-sales promotion are :- Timing o the promotion – when it should start? Timing o the promotion – when it should start?

How long should it last?How long should it last? What should be the type of sales promotion?What should be the type of sales promotion?

The common types of sales promotion are:The common types of sales promotion are:Price promotions: A special price is announced Price promotions: A special price is announced

for specific items for a limited period of time. for specific items for a limited period of time. This a very common form of sales promotion. This a very common form of sales promotion. But not all such promotions are effective, But not all such promotions are effective, because it is observed that many customers because it is observed that many customers stop visiting after the promotion is over.stop visiting after the promotion is over.

Trading stamps: These stamps have Trading stamps: These stamps have denominations. These are given to shoppers as denominations. These are given to shoppers as a bonus when they buy a certain value of a bonus when they buy a certain value of purchase at the stores. After the retailer has purchase at the stores. After the retailer has collected a number of such bonus stamps, he collected a number of such bonus stamps, he can redeem these for various gift items.can redeem these for various gift items.

Sales PromotionSales Promotion Contests and games: This is to create Contests and games: This is to create

excitement. This may be in the form of excitement. This may be in the form of completing a puzzle, or picking up a lucky completing a puzzle, or picking up a lucky number.number.

Free samples: This is often done to promote Free samples: This is often done to promote a new product by a manufacturer. a new product by a manufacturer.

Coupons: These are distributed to entitle Coupons: These are distributed to entitle customers to get a product at a reduced customers to get a product at a reduced price.price.

Special events: Fashion shows, magic Special events: Fashion shows, magic shows, mini rock concerts are conducted shows, mini rock concerts are conducted and often celebrities are invited to and often celebrities are invited to participate. participate.

Sales PromotionSales Promotion Some methods followed for laying down a Some methods followed for laying down a

promotion plan or fixing a promotion budget are:promotion plan or fixing a promotion budget are:Margin analysis method:Margin analysis method:

In this the retailer starts with a conservative In this the retailer starts with a conservative budget for advertisement. Thereafter evaluates budget for advertisement. Thereafter evaluates this budget against the performance and this budget against the performance and makes the adjustments for the next makes the adjustments for the next month/period. This is a scientific method.month/period. This is a scientific method.

Intuition method:Intuition method:Here the retailer does not do step by step Here the retailer does not do step by step evaluation but follows his intuitions to lay down evaluation but follows his intuitions to lay down the plans and fix up the budget.the plans and fix up the budget.

Percentage of sales method:Percentage of sales method: Voume of sale or turnover is a logical basis for Voume of sale or turnover is a logical basis for

fixing the promotion budget. But here the type fixing the promotion budget. But here the type and nature of merchandise should also be and nature of merchandise should also be considered.considered.

PublicityPublicity Publicity is the method for generating unpaid Publicity is the method for generating unpaid

impersonal communication. . This is done by impersonal communication. . This is done by establishing a good rapport with the press. A establishing a good rapport with the press. A free publicity helps the retailer. The customer is free publicity helps the retailer. The customer is convinced more with an unpaid communication. convinced more with an unpaid communication. This form generates new customers. This helps This form generates new customers. This helps word of mouth publicity also. For example word of mouth publicity also. For example inauguration of a store or a special event getting inauguration of a store or a special event getting an extensive coverage in the TV or Newspaper. an extensive coverage in the TV or Newspaper. An unpaid item /article in the media, if regarded An unpaid item /article in the media, if regarded as impartial and unbiased, can boost the image as impartial and unbiased, can boost the image of a retail business immensely. of a retail business immensely.

Word of mouth is a very effective form of Word of mouth is a very effective form of publicity. This may be slow but it helps to create publicity. This may be slow but it helps to create a very credible image in the mind of prospective a very credible image in the mind of prospective customers. This mode of communication can be customers. This mode of communication can be very harmful if its negative in nature. very harmful if its negative in nature.

AdvertisingAdvertising Different types of retail advertising are:Different types of retail advertising are:

Data base marketing – This form of Data base marketing – This form of marketing implies generating a large data marketing implies generating a large data bank and then targeting customers in bank and then targeting customers in innovative forms.innovative forms.

Newspapers / magazinesNewspapers / magazinesShopping guides and yellow pagesShopping guides and yellow pagesT.V / radioT.V / radioBill boards and bannersBill boards and bannersAdvertising with the vendors cooperationAdvertising with the vendors cooperationSpecial events / sponsorships to improve Special events / sponsorships to improve

store’s image and goodwill.store’s image and goodwill.

Information Technology in Information Technology in RetailingRetailing

Role of IT in Retail Industry The traditional retailing was easier to manage The traditional retailing was easier to manage

because of its size, scope and uncompetitive because of its size, scope and uncompetitive nature; and usually the shops were managed nature; and usually the shops were managed by the owner-manager. But the modern retail by the owner-manager. But the modern retail formats, which are superstores and large formats, which are superstores and large chains owned by large organizations, are chains owned by large organizations, are difficult to manage without an efficient and difficult to manage without an efficient and reliable IT system in place. reliable IT system in place.

IT adds value in retailing byIT adds value in retailing by Improving efficiency of Supply ChainImproving efficiency of Supply Chain Improving the Shopping experienceImproving the Shopping experience Business OptimizationBusiness Optimization

Role of IT in Retail Industry Improving Efficiency of Supply Chain

IT helps in having an agile supply chain network that seamlessly connects demand, supply and product.

With so many different outlets and channels, multiple hand-offs, and high frequency of replenishment, developing and managing an efficient supply chain remains one of the primary challenges in the retail sector. IT provides invaluable support in these areas.

Merchandizing systems impact top-line revenues and need to be configured, customized and managed effectively. To achieve this, large

Role of IT in Retail Industry amounts of data needs to be effectively

mined and leveraged to carry out effective forecasting, assortment planning, and collaboration with suppliers. IT provides solutions in these areas.

Improving the Shopping Experience: To achieve this, retailers use IT Solutions for

CRM to retain & acquire customers, to analyze consumer-buying behaviour, buying patterns of ‘loyalty cardholders’ etc. Indian retailers like Pantaloon, Café Coffee Day, Barista and Shoppers Stop etc use CRM packages.

Role of IT in Retail Industry Business Optimization:Business Optimization:

To achieve it, some of the IT tools are: To achieve it, some of the IT tools are: Business Intelligence tools :- These tools are Business Intelligence tools :- These tools are

for Data warehousing, data mining, Online for Data warehousing, data mining, Online Analytical Processing (OLAP). Business Analytical Processing (OLAP). Business Intelligence tools are very versatile that Intelligence tools are very versatile that analyze sales data from the POS, determine analyze sales data from the POS, determine trend of sales for the categories and sub-trend of sales for the categories and sub-categories of merchandise sold from categories of merchandise sold from dispersed stores. These enable the retailers to dispersed stores. These enable the retailers to understand the frequency of sale, understand the frequency of sale, geographical spread of sales, types of sold geographical spread of sales, types of sold merchandise and also provide ‘what if’ merchandise and also provide ‘what if’ analysis specially for projected sales and price analysis specially for projected sales and price changes . changes .

Role of IT in Retail Industry RFID (RFID (RadioRadio-frequency identification) -frequency identification)

Currently RFID is profitably being used in retail Currently RFID is profitably being used in retail firms of developed countries primarily in two firms of developed countries primarily in two sections namely in supply chain, warehouses sections namely in supply chain, warehouses and Retail front. It ensures individual articles and Retail front. It ensures individual articles tagged by RFID enable quick billing and to tagged by RFID enable quick billing and to ensure automated stock keeping.ensure automated stock keeping.

ERP ( Enterprise resource planning) packages:ERP ( Enterprise resource planning) packages: ERP software applications help in resource ERP software applications help in resource

planning, management control and operational planning, management control and operational control. It is a multi-module application software control. It is a multi-module application software that integrates activities across functional that integrates activities across functional departments. departments.

o Reputed ERP solution packages are SAP retail, oracle Reputed ERP solution packages are SAP retail, oracle retail, Retek, JDA, QRS and GSI. These retail packages retail, Retek, JDA, QRS and GSI. These retail packages are costly but the advantages are manifold. Cheaper are costly but the advantages are manifold. Cheaper versions are now available for smaller retailers.versions are now available for smaller retailers.

Role of IT in Retail Industry ERP retail solution like SAP for example supports:ERP retail solution like SAP for example supports:

product development, which includes, trend analysis, product development, which includes, trend analysis, and collaboration with partners in the supply chain;and collaboration with partners in the supply chain;

sourcing and procurement, which involves working sourcing and procurement, which involves working with manufacturers to fulfill orders according to with manufacturers to fulfill orders according to strategic merchandising plans and optimise cost, strategic merchandising plans and optimise cost, quality, and speed–variables that must be weighted quality, and speed–variables that must be weighted differently as business needs, buying plans, and differently as business needs, buying plans, and market demand patterns change; market demand patterns change;

managing the supply chain, which involves handling managing the supply chain, which involves handling the logistics of moving finished goods from the source the logistics of moving finished goods from the source into stores ; into stores ;

selling goods across a variety of channels to selling goods across a variety of channels to customers, which requires marketing and brand customers, which requires marketing and brand management; management;

managing mark-downs managing mark-downs capturing customer reactions, analysing data, and capturing customer reactions, analysing data, and

using it to optimise the next phase of the design using it to optimise the next phase of the design process.process.

Information systems in retailingInformation systems in retailing The different information systems in retail The different information systems in retail

business: business: Merchandising system : Merchandising system :

- This is the core system that addresses - This is the core system that addresses the information need of many activities. the information need of many activities. It links purchase to inventories receiving It links purchase to inventories receiving account etc. account etc.

Sales and marketing system :Sales and marketing system : - This supplies vital information to cover - This supplies vital information to cover

the market effectively. So it is linked to the market effectively. So it is linked to merchandising system. merchandising system.

Point of sales system : Point of sales system : - This is for the sales department at retail - This is for the sales department at retail

stores. This helps in billing, items wise stores. This helps in billing, items wise analysis of fast and slow moving items analysis of fast and slow moving items etc.etc.

Information systems in retailingInformation systems in retailing Financial accounting :Financial accounting : - Covers two main areas - Covers two main areas 1. Accounts payable for the purpose1. Accounts payable for the purpose of payment and general ledger of payment and general ledger 2. Accounts receivable which helps in2. Accounts receivable which helps in credit management. credit management. Attendance and payroll :Attendance and payroll : - For attendance, absenteeism, salary, loan - For attendance, absenteeism, salary, loan etc.etc.

of employees. of employees. Administrative systems : Administrative systems :

- Complaint processing of A/c, lighting, - Complaint processing of A/c, lighting, plumbing, plumbing,

furniture, fixtures etc. – maintenance records. furniture, fixtures etc. – maintenance records. - Helps in controlling energy costs.- Helps in controlling energy costs.

Information systems in retailingInformation systems in retailing Advantages of computerisation: Advantages of computerisation:

Faster data accessibilityFaster data accessibility - a control data bank is created and several - a control data bank is created and several users can access the data. users can access the data.

Improved stock maintenance Improved stock maintenance - prevents out of stock situations- prevents out of stock situations - eliminates unnecessary stocking of items - eliminates unnecessary stocking of items

(slow(slow moving)moving)

Decreases chances of mistakesDecreases chances of mistakes - ensures accuracy of information- ensures accuracy of information Tracking paying buying patterns Tracking paying buying patterns Better financial control Better financial control Better decision making Better decision making Reduction of manpower cost Reduction of manpower cost

Information systems in retailingInformation systems in retailing Limitations of computerisation Limitations of computerisation

Cost factor - Fully integrated ERP system Cost factor - Fully integrated ERP system costs between 50 lacs to 2.0 crore. But costs between 50 lacs to 2.0 crore. But cheaper versions of 5 to 6 lacs are also cheaper versions of 5 to 6 lacs are also available with reasonably good range of available with reasonably good range of solutions adequate for smaller stores. solutions adequate for smaller stores.

Developing and maintaining data and the Developing and maintaining data and the system needs expertise and skill.system needs expertise and skill.

Database management in Database management in retailingretailing

What is data warehousing & how does it help ? What is data warehousing & how does it help ? In retailing there are several operational data In retailing there are several operational data

bases catering to specific departments/areas bases catering to specific departments/areas such as – vendor management, inventory such as – vendor management, inventory management, marketing management, management, marketing management, financial management etc. financial management etc.

Data warehouse is created by copying Data warehouse is created by copying selected parts of these data bases which are selected parts of these data bases which are required for decision making. required for decision making.

These copied data are read only data. The These copied data are read only data. The data warehouse is mainly for decision data warehouse is mainly for decision making. Analysis is required for decision making. Analysis is required for decision

making.making.


Following are the typical analyses made Following are the typical analyses made possible by proper data warehousing – possible by proper data warehousing – competitive price analysis, price elasticity competitive price analysis, price elasticity

analysisanalysis markup/down opportunity analysismarkup/down opportunity analysis promotional price analysis promotional price analysis branded/private label analysisbranded/private label analysis promotion performance analysispromotion performance analysis

What is DSS ? What is DSS ? Decision support system is a computer aided Decision support system is a computer aided

methodology of using the database available methodology of using the database available in the data warehouse. It summarisesin the data warehouse. It summarises information to help decision making. MIS is information to help decision making. MIS is a variation of DSS which is customised for a variation of DSS which is customised for senior level managers. senior level managers.


What is data mining ? What is data mining ? This is a way by which specific queries can be This is a way by which specific queries can be

answered by going through the exhaustive data answered by going through the exhaustive data (in data warehouse) in a systematic way. This (in data warehouse) in a systematic way. This is done by association sequencing (linking is done by association sequencing (linking events), classification, clustering (subgroups in events), classification, clustering (subgroups in the data), forecasting etc. the data), forecasting etc.

What are the uses of data bases for retailers ?What are the uses of data bases for retailers ? Customer profiling and analysis : Customer profiling and analysis : -detailed information about customers -detailed information about customers

captured captured in the database allows segmentation and in the database allows segmentation and

thusthus

leads to insightful decisions.leads to insightful decisions.


Targeted communication Targeted communication - avoids the waste in the case of mass media by- avoids the waste in the case of mass media by only communications with potential buyers. only communications with potential buyers. - makes it cost efficient - makes it cost efficient

Loyalty programme Loyalty programme - preferred customer cards (loyalty programme)- preferred customer cards (loyalty programme) can be given to select loyal customers.can be given to select loyal customers. (as per CRM it is eight times cheaper to retain (as per CRM it is eight times cheaper to retain an old customers than makes a new one.)an old customers than makes a new one.)

Merchandise management Merchandise management - Can help time merchandising activities - Can help time merchandising activities and decision making process.and decision making process.

Store localization Store localization - study the differences between stores. - study the differences between stores.

Software systems for retailingSoftware systems for retailing

What are the aspects that need to be considered What are the aspects that need to be considered for selecting a suitable software system for for selecting a suitable software system for retail business? retail business?

Selection of software platform : Selection of software platform : RDBMS (Rational Database Management RDBMS (Rational Database Management

System) is now the most used data base System) is now the most used data base system in the world.system in the world.

There are back-end data base engines There are back-end data base engines which are supported by front end tools. If which are supported by front end tools. If required both can be integrated even at required both can be integrated even at a later date. a later date. Popular ones are oracle, sky base, SQL Popular ones are oracle, sky base, SQL server etc. server etc.

Software systems for retailingSoftware systems for retailing Selection of Networking : Selection of Networking :

Networking software allow several computers to Networking software allow several computers to

provide and access information to and from eachprovide and access information to and from each

other. The popular solutions are UNIX, Novell andother. The popular solutions are UNIX, Novell and

Windows NT. Windows NT. Choice and development of retail application: Choice and development of retail application:

Development of retail application is a specializedDevelopment of retail application is a specialized

job. The selection of the application provides job. The selection of the application provides

needs to be done judiciously. needs to be done judiciously.

Hardware tools used in Hardware tools used in retailingretailing

What are the main and crucial hardware What are the main and crucial hardware components used in retailing ? components used in retailing ?

Point of sale (POS) machines are placed at Point of sale (POS) machines are placed at check out counters. POS machines gather check out counters. POS machines gather latest information from the back-end systems to latest information from the back-end systems to perform billing and customer interface related perform billing and customer interface related activities. After each sale transaction POS activities. After each sale transaction POS sends the information to the back-end system sends the information to the back-end system for updation of data. POS machine has an for updation of data. POS machine has an inbuilt monitor, keyboard and a small printer. inbuilt monitor, keyboard and a small printer.

Bar code scanners :- Bar-Coding is a technology Bar code scanners :- Bar-Coding is a technology by which a specific numerical code is by which a specific numerical code is transferred in the form of black and white bar transferred in the form of black and white bar codes. codes.

Hardware tools used in Hardware tools used in retailingretailing

The width and size of the bars distinguishes the The width and size of the bars distinguishes the numerical code transferred. These bar-codes numerical code transferred. These bar-codes are scanned with the help of ‘Bar-Code-are scanned with the help of ‘Bar-Code-Scanners’. The computer thus reads the item Scanners’. The computer thus reads the item codes. codes.

Main computer system Main computer system • Server is the hardware that functions as Server is the hardware that functions as

the nerve-centre for storing and processing the nerve-centre for storing and processing of all the data that gets generated at of all the data that gets generated at different points. A multi-location retailer different points. A multi-location retailer will require servers at every location and a will require servers at every location and a central server at H.O.central server at H.O.

• Computer nodes are the PCs that are used Computer nodes are the PCs that are used by various users in different departments in by various users in different departments in a retail organization. a retail organization.

Retail Management (Imm)

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